With elevated COVID cases and a major winter storm that paralyzed much of the south, February was a speed bump for the US economy.  The latest example comes from this morning’s release of the Chicago Fed National Activity Index (CFNAI).  From the website of the Chicago Fed, “The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.”

The release for February showed considerable weakness falling from a strong reading of 0.75 in January to -1.09 in February.   The chart below shows historical readings of the CFNAI index dating back to 1970 with recessions highlighted in gray and a red line indicating the current reading for February.  Because of the major swings we saw in this index around the COVID outbreak last year, this chart is pretty useless in terms of looking at the current data to see how it compares to prior periods.

In order to get a better view, in the chart below we have cut off the y-axis to leave out the extreme readings from 2020.  Looking at it this way shows just how weak February was.  Looking back, just about every prior occurrence where the CFNAI was below -1 the US economy was in a recession.  Besides the period in 2020, the last times this index was at similar levels was during the Financial Crisis, during the dot-com recession, the 1990 recession, and then the double-dip recession of the 1980s.  Noticing a trend?

The table below shows every month where the CFNAI was less than negative one (-1). Since 1970, out of 612 monthly readings, there have only been 37 months that the index was below -1.  Of those 37 months, there have only been two (Jan 1978 and April 1979) that occurred when the US economy wasn’t in a recession.  Technically, since the NBER has yet to confirm an end date, the US economy remains in the COVID recession, but most would agree that when the time comes, the recession will likely have ended in the second or third quarter of 2020 which would make February just the third month since 1970 that the CFNAI was below -1 outside of a recession.  In other words, in just about any other time but now, an overheating economy would be the last thing people would be worried about right now given a negative reading of this magnitude in the CFNAI.  Click here to view Bespoke’s premium membership options for our best research available.

As shown below, there is not a single BRIC or G7 country that has a total return of less than 50% since the March 23rd, 2020 COVID low through today.  Of all of these, India (PIN) boasts the best return having more than doubled and leading the pack throughout basically all parts of the past year.  There were only a couple of points in time early on in the recovery that PIN was not the leader. That was when Brazil (EWZ) was up the most, but since the end of 2020, the country’s equities have significantly underperformed.  The same applies to China (ASHR).  Meanwhile, Russia (RSX) and the US (SPY) have more steadily continued higher alongside PIN.

As for the developed world, things have been more stable. There has not been a G7 country that has fallen sharply recently in the same way as Brazil or China. As a result, China (ASHR) actually has the worst return over the past year out of all G7 and BRIC countries and Brazil would rank as the second-worst. Earlier in the pandemic, Canada (EWC) and Germany (EWG) had been vying for the best-performing G7 country, but since the fall, EWC has put some distance between itself and the rest. The US has the next best returns with a 78.46% total return over the past year.
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Tomorrow will mark the one-year anniversary of the S&P 500’s closing low from the COVID crash, and for most stocks in the index, it has been a historic year.  Within the S&P 500, stocks in the index are up an average of 104.22% through Friday’s close, and just three stocks – all from the Health Care sector – are actually lower.  Leading the losers, Gilead (GILD) has declined over 10%.  Recall that GILD performed well during the initial stages of the pandemic on the promising results of its drug Remdesivir in treating COVID patients, but once the market started to rally, it was left behind.

The table below lists the top 25 performing stocks in the S&P 500 since the closing low on 3/23/20.  Topping the list with a gargantuan gain of 763% is ViacomCBS (VIAC).  After trading below $12 per share last March, the stock is close to triple-digits today.  Behind VIAC, Tesla (TSLA), L Brands (LB), Etsy (ETSY), and Freeport-McMoRan (FCX) round out the top five, and all have gained in excess of 500%.  Interestingly enough, despite the strength of the sector for what seems like years now, the only stock on the list from the Technology sector is Enphase Energy (ENPH).  In fact, after ENPH, you have to go all the way down to the 53rd spot to find the next stock from the Technology sector (Applied Materials – AMAT, +186%).

Leading the way higher, stocks in the Consumer Discretionary and Energy sectors are both up an average of over 150%, while Consumer Staples and Utilities are the only two sectors where each one’s components are up an average of less than 50%.   Just to the right of the S&P 500 in the chart below is the Technology sector which is one of five sectors where the average performance of its components is less than 100%.  A gain of 96.1% in a year is nothing to sneeze at in any market environment, but just the fact that the average performance of stocks in the Technology sector since the March lows is now lower than the average of the S&P 500 illustrates the shift we have seen since the sector’s peak relative strength last fall.  Click here to view Bespoke’s premium membership options for our best research available.

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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COVID

3 Ways the Pandemic Has Made the World Better by Zeynep Tufecki (The Atlantic)

Custom-designed vaccines, deeper use of digital infrastructure, and open science are three critical benefits of the COVID-19 pandemic that will be with us for a long time to come. [Link; soft paywall]

America’s Covid Swab Supply Depends on Two Cousins Who Hate Each Other by Olivia Carville (Bloomberg)

Swabs that are critical for testing were only manufactured by two companies globally at the advent of the COVID pandemic. The American one was rife with disfunction, making it a very poor candidate to ramp production to meet impossibly high demand. [Link; soft paywall]

Why Black Parents Aren’t Joining the Push to Reopen Schools by Melinda D. Anderson (Mother Jones)

A deep dive into why there’s a racial divide between black and white parents over the question of school reopenings. [Link]

Changing Preferences

Boat sales took off during the pandemic and now dealers can’t keep up with demand by Katie Tsai (CNBC)

Boat sales are at decade-plus highs, with first-time buyers by far the biggest segment of new buyers and sustaining their enthusiasm despite the waning of the COVID pandemic. [Link]

Roughly 4 in 5 Manhattan Office Workers Will Not Return Full-Time, Survey Says (NBC New York)

A Partnership for New York City survey showed that just 22% of the large employers on the island of Manhattan plan to bring their workforces back to the office full time. Two-thirds reported planning on a hybrid model. [Link]

Speculation Is Our Middle Name

Tapping Day-Trader Cash, ETF Launches Go From Risky to Roaring by Claire Ballentine (MSN/Bloomberg)

Betting and iGaming, SPAC-Derived, Social Sentiment, and Equity Sentiment ETFs have proliferated, fueled by a huge class of day traders and novice investors who have arrived in stock markets during the pandemic. [Link]

ARKK Copycat Is Beating Cathie Wood’s Original by 10-Fold by Claire Ballentine (Bloomberg)

A small ETF that goes by the memorable ticker MOON is aiming to take on the ARK Invest empire via a focus on innovation. Unlike ARK products, MOON is index-based. [Link; soft paywall]

Morgan Stanley becomes the first big U.S. bank to offer its wealthy clients access to bitcoin funds by Hugh Son (CNBC)

Clients with more than $2mm in assets at Morgan Stanley and an “aggressive risk tolerance” are now eligible to buy funds that offer bitcoin exposure via the MS platform. [Link]

Bonds

Investing in bonds has ‘become stupid,’ Ray Dalio says. Here’s what he recommends instead by Mike Murphy (MarketWatch)

Somewhat hilariously given the fact that the largest hedge fund in the world owns massive exposure to government bonds, its founder has argued that owning bonds is “stupid”. [Link]

Economic Research

The ‘China Shock’ revisited: insights from value added trade flows by Adam Jakubik and Victor Stolzenburg (Journal of Economic Geography)

The authors decompose imports and exports to identify the US component of gross value added in trade flows and the output that stems from them in order to illustrate a very different impact on US labor markets than previously estimated from the “China Shock”. [Link]

Autos

‘No one focuses on the pain here’: Inside Oakland’s abandoned car epidemic by Ariana Bindman (SFGate)

Thousands of abandoned vehicles have piled up in Oakland, often after they’ve been stolen and stripped for valuable parts. The city has under-budgeted a response that requires large resources to properly deal with the scale of the problem. [Link]

Beer

Why Did Women Stop Dominating the Beer Industry? by Laken Brooks (Smithsonian Magazine)

During the Middle Ages, women were the ones that brewed beer. But the advent of scalable quasi-industrial brewing meant that men had an incentive to force them off their turf. [Link]

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