Construction Spending – What Pandemic?
The month of March is no doubt starting off on a positive note for economic data. In addition to the ISM Manufacturing report, which moved to its highest level since January 2018, the latest update on Construction Spending for the month of January was also incredibly strong. While economists were expecting the headline index to rise by 0.8%, the actual level of growth was more than double that at 1.7%. The chart below shows the headline index going back to 2005, and the latest leg higher has been incredible, rising by 11.1% from its May low and leaving the pre-COVID peak in the dust. It’s also worth pointing out that the decline in Construction Spending was actually smaller and shorter than the decline we saw during 2018!
Also notable about Monday’s report on Construction Spending is the fact that January marked the fourth straight month where the headline index grew more than 1% m/m. Since 1993, there have only been three streaks that were longer and another three that were as long. In case you needed a reminder, the economy is humming. Click here to view Bespoke’s premium membership options for our best research available.
Bespoke’s Morning Lineup – 3/1/21 – In Like a Bull
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week free trial to Bespoke Premium. CLICK HERE to learn more and start your free trial.
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” – Warren Buffett
Futures markets are doing their best to forget last week’s decline in the equity market. Futures are 1% higher as March is certainly coming in like a bull. There’s a decent amount of good news related to the economy and COVID trends, including the approval of J&J’s one-shot vaccine. The J&J news was expected, though, so it will be interesting to see how the rally holds up once the opening bell rings. The Nasdaq 100 tracking ETF is set to open up at around $318.5 which is a bit shy of its 50-Day Moving Average ($320) so that potential resistance still looms overhead.
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, Markit PMI Data, trends in unionization, an update on the latest national and international COVID trends, including a new series of charts tracking vaccinations, and much more.
Treasuries had a nice rebound on Friday, but the rally did little to dig them out of the hole they’ve dug for themselves, especially at the longer end of the curve. Including Friday’s rebound, the iShares 20 Plus Year Treasury Bond ETF (TLT) is down 9.6% over the last 50 trading days. That’s an improvement from Thursday’s reading of -12.7%, but it still ranks as one of the sharpest drawdowns over a 50-trading day period since the ETF’s introduction in 2003. Before last week, the last time the ETF was down by as much over a 50 trading day period was in December 2016 just after the election. The recent sharp downside move in long-term US treasuries has been a big wake-up call for investors, but at the same time, it has hardly been unprecedented.
Bespoke Brunch Reads: 2/28/21
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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Health Research
Could Fruit Flies Help Match Patients With Cancer Treatments? by Michele Cohen Marill (Wired)
Fruit flies are remarkably similar to humans in many ways, making them a useful model for mass testing of treatments for cancers that are tailored to the individual patient. [Link; soft paywall]
What’s Safe After COVID-19 Vaccination? Don’t Shed Masks Yet by Lauran Neergaard (NBC4)
While widespread vaccination will eventually return society to pre-COVID “normalcy”, a first dose of a vaccine is not a free pass to stop all the behaviors which help spread the virus. [Link]
Scarcity
Future Vaccines Depend on Test Subjects in Short Supply: Monkeys by Sui-Lee Wee (NYT)
Macaques are a critical species for early-phase research on drugs of many kinds, and the recent explosion of COVID R&D has made them increasingly difficult to get a hold of. [Link; soft paywall]
Where Have All the Houses Gone? by Emily Badger and Quoctrung Bui (NYT)
Skyrocketing demand for homes has been one fact in extremely low inventories, but a lack of supply driven in part by fears over COVID is also a major factor in the lack of available houses. [Link; soft paywall]
Lumber Prices Are Soaring. Why Are Tree Growers Miserable? by Ryan Dezember and Vipal Monga (WSJ)
While demand for US lumber is absolutely soaring and forcing sawmills to run flat out, there’s such a huge backlog of timber on the market that timber growers are struggling despite the massive rise in prices. [Link; paywall]
How Did We End Up With This Chip Shortage? by Anjani Trivedi (Bloomberg)
The auto industry is being forced to curtail production because it can’t get its hands on enough semiconductors, part of a global shortfall in semis that comes down to a basic planning failure. [Link; soft paywall]
Equity Market Madness
Dot-Com Survivors Have Wisdom for the GameStop Crowd by Joe Nocera (Bloomberg)
Looking back on the traders that were caught up in the last stock market bubble to try and find some lessons for the current crop of desperate stock market bidders. [Link; soft paywall]
A Stock-Trading Dupe Is Born Every Minute by Andy Kessler (WSJ)
The history of pump-and-dumps and the way that the GameStop saga fits into the classic narrative…and doesn’t. [Link; paywall]
Are We In a Stock Market Bubble? by Ray Dalio (LinkedIn)
The head of the world’s largest hedge fund thinks that the signals are mixed as to whether the current equity market is in a bubble, though certain areas of the market are certainly looking carried away. [Link]
Speculation In Everything
‘Nyan Cat’ flying Pop-Tart meme sells for nearly $600,000 as one-of-a-kind crypto art by Grace Kay (Business Insider)
An Ethereum-based piece of digital animation has sold for six figures, in one of the more head-scratching trades we’ve seen recently. [Link]
What Are NFTs and How Do They Work? by Ollie Leech (Coindesk)
Non-fungible tokens aka NFTs are a new approach to blockchain assets that are each unique; unlike other forms of crypto, which are fungible when combined or divided into larger or smaller values, NFTs are each unique. [Link]
How Did A LeBron James Video Highlight Sell For $71,455? A Look At A Burgeoning Product Called NBA Top Shot. by Tommy Beer (Forbes)
One application of NFTs is the NBA’s new digital trading card system. Blockchain-based Top Shot is a way to collect unique and tradable highlights. [Link]
Sneakerheads Have Turned Jordans and Yeezys Into a Bona Fide Asset Class by Joshua Hunt (Bloomberg)
Tight supply and booming demand for street shoes have driven a spectacular run for middlemen and speculators alike when it comes to sneakers. [Link; soft paywall]
What is Grenadine Made From? by Darcy O’Neil (Art of Drink)
The fabled cocktail syrup grenadine is popularly assumed to be derived from pomegranate, owing to the literal translation of its name, but in point of fact its origins are far more obscure. [Link]
Economic Myths
Potential Output: Little Explanation for a Big Number by Alex Williams (Employ America)
Recent debates about fiscal stimulus have revolved around the sizes proposed relative to the output gap, but that concept is dependent on an estimate of “potential” GDP which is little more than a gussied-up shot in the dark about how much the economy can produce. [Link]
Sports
Why Athletes’ Birthdays Affect Who Goes Pro — And Who Becomes A Star by Tim Wigmore (538)
Children born in a specific time of the year are much more likely to be active in elite amateur sports, owing to the fact that they are initially selected for size and development and then up-streamed to further training. [Link]
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Have a great weekend!
The Bespoke Report – 2/26/21 – Poker Time For Bonds & The Fed
Stocks closed out the week in a full-throated test of uptrends after a week of historic volatility in interest rate markets. We discuss in detail the scale, nature, and implications of the move in interest rates, as well as some of the knock-on effects for equity markets. The rotation out of momentum and in to value has continued, with some of the most impressive gainers of recent years under harsh pressure in recent weeks. That’s going to cause a shake-up in terms of what stocks are included in momentum indices which are currently underperforming. We also take a deep dive into renewables, discussing some of the major stocks in the sector and their recent declines.
We also recap earnings results, discuss economic data here and abroad, make the case that the recent bond market move is a test for the FOMC, and more in this week’s Bespoke Report.
This week’s Bespoke Report newsletter is now available for members.
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Daily Sector Snapshot — 2/26/21
February: In With a Bang, Out With a Whimper
The month of February has been a tale of two markets for global investors with the first half of the month seeing nothing but gains and the second half seeing pretty much nothing but declines. The Bloomberg World index of more than 4,000 global companies was up eleven days in a row to start the month for a gain of more than 6%! Since February 15th, though, the index has fallen on eight of nine trading days for a decline of more than 4%. As it stands now, the index is still up 1.9% for the month, but the second-half declines have now left the index below its 50-day moving average for the first time since Election Day 2020 (11/3). Click here to view Bespoke’s premium membership options for our best research available.
B.I.G. Tips – Crash Confidence and Irrational Exuberance
B.I.G. Tips – Treasury Turmoil
Bespoke’s Morning Lineup – 2/26/21 – Uneasy Markets
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week free trial to Bespoke Premium. CLICK HERE to learn more and start your free trial.
“We will ensure that there is no unwarranted tightening of financing conditions,” – Isabel Schnabel, ECB Board Member
Well, that didn’t take long. Just days into a market growing uneasy with the rise in government bond yields and Christine Lagarde noted that the ECB is ‘closely monitoring’ the situation in fixed income markets, Isabel Schnabel, a prominent member of the ECB tried to reassure markets that the ECB “will ensure that there is no unwarranted tightening on financing conditions”. She went on to add that the central bank would add further support to the markets if rising yields threaten to hurt growth. On both sides of the Atlantic, central bankers are doing their best to reassure markets that they will keep rates low, but for now, at least, the market isn’t so confident.
Futures have been volatile this morning and depending on when you look they may be up or down, and they are currently on the downside for both the S&P 500 and the Nasdaq. The economic calendar is busy with Wholesale Inventories, Personal Income, and Personal Spending at 8:30 AM. At 9:45, we’ll get the release of the February Chicago PMI, and then at 10:00, we’ll close out the week with the University of Michigan Sentiment Index.
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, ARK Invest fund flows, economic data out of Europe, an update on the latest national and international COVID trends, including a new series of charts tracking vaccinations, and much more.
Also, Paul Hickey appeared on CNBC’s Squawk Box this morning to discuss the current moves in interest rates and what they mean for the market. You can see that segment here.
Thursday was a day many bulls would rather forget as the S&P 500 dropped over 2%, and the Nasdaq 100 fell more than 3%. Historically, declines of these magnitudes usually see a modest bounceback the following day, but believe it or not, the distribution of returns based on the day of the market decline varies widely. The charts below show the S&P 500’s and Nasdaq 100’s average next-day return (top charts) and the percentage of time each index is up (bottom charts) following days when they experience sharp declines.
When the S&P 500 declines more than 2% on a Thursday, the average next-day return is just 0.02% with positive returns 50.6% of the time. Of all the days of the week, that is the second weakest next day return and the second-lowest percentage of positive returns.
For the Nasdaq 100, it’s a similar setup. When that index declines more than 3% on Thursdays, the average next-day return is a gain of 0.05% with positive returns just 47.3% of the time. More than any other day of the week, when the Nasdaq 100 drops 3% on a Thursday, the likelihood of a down Friday is the highest.
The Bespoke 50 Top Growth Stocks — 2/25/21
Every Thursday, Bespoke publishes its “Bespoke 50” list of top growth stocks in the Russell 3,000. Our “Bespoke 50” portfolio is made up of the 50 stocks that fit a proprietary growth screen that we created a number of years ago. Since inception in early 2012, the “Bespoke 50” is up 468.1% excluding dividends, commissions, or fees. Over the same period, the S&P 500 is up in price by 177.6%. Always remember, though, that past performance is no guarantee of future returns. To view our “Bespoke 50” list of top growth stocks, please start a two-week free trial to either Bespoke Premium or Bespoke Institutional.
