So far price action today is showing a pretty heavy New Years hangover for investors with markets dropping steadily across the first half of the first trading day of 2021. What’s interesting is how much this looks like profit-taking in the wake of a spectacular second half last year. Obviously, there was a big bounce off the lows back in March, but even stripping out that initial bounce by looking just at the second half of the year, there’s a clear pattern in today’s trading for big winners leading the way lower. In the chart below, we show the average intraday performance of stocks in the Russell 3000, grouped by their performance last year. This broad index includes both large and small-cap stocks. As shown, by far the biggest losers today are the stocks that were the biggest gainers in the second half of last year.  Conversely, stocks that were at the bottom in terms of performance in the second half of last year are nearly unchanged so far today.   Investors accumulated a lot of gains in the second half of 2020, and based on today’s performance, it appears as though they were waiting for the calendar to turn before locking in some of those gains. Like what you see? Click here for a free trial to any of Bespoke’s premium membership options, including our nightly Closer note that regularly features decile analysis of this kind.

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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Security

GoDaddy Employees Were Told They Were Getting a Holiday Bonus. It Was Actually a Phishing Test. by Lorraine Longhi (The Copper Courier)

Lured with promises of a year-end bonus, employees of GoDaddy responded to an email from an internal domain only to find out they had failed a phishing test. [Link]

Insecure wheels: Police turn to car data to destroy suspects’ alibis by Olivia Solon (NBC)

With little precedent over privacy related to various data systems used in modern vehicles, privacy advocates and prosecutors are gearing up for a major conflict over whether the data cars carry can incriminate suspects. [Link]

Education

How Covid-19 Makes Teaching Reading Harder by Leslie Brody (WSJ)

Reading allowed is a challenge when teaching remotely, and that doesn’t include the challenges of faulty technology. Millions of children are at risk of falling far behind. [Link; paywall]

When the Great Equalizer Shuts Down: Schools, Peers, and Parents in Pandemic Times by Francesco Agostinelli, Matthias Doepke, Giuseppe Sorrenti & Fabrizio Zilibotti (NBER)

Educational inequality is already a huge challenge in the United States, and the pandemic is increasing the already wide gulf between students with resources and those without. [Link]

Hedge Funds

Human-Run Hedge Funds Trounce Quants in Covid Year by Hema Parmar, Katherine Burton, and Nishant Kumar (Bloomberg)

The dramatic volatility and rapid moves across the investment universe have made nimble human-driven funds better-performers than algorithmic traders in the hedge fund industry this year. [Link; soft paywall, auto-playing video]

Wrong-Way Bet on Covid Is Changing Oil-Trading Industry Forever by Alfred Cang (Bloomberg)

One of the biggest names in crude oil trading blew up in spectacular fashion, with billions in debt and nothing to show for it thanks to the collapse in demand for petroleum that led to a collapse in crude markets. [Link; soft paywall]

Books

Washington’s Secret to the Perfect Zoom Bookshelf? Buy It Wholesale. by Ashley Fetters (Politico)

The secret to a good Zoom bookshelf isn’t a wide library of books that you’ve read, but bulk orders intended only to meet the aesthetic needs of an office with a webcam. [Link]

Surprise Ending for Publishers: In 2020, Business Was Good by Elizabeth A. Harris (NYT)

Whether intrepid book buyers spent the pandemic reading or just telling themselves they were going to read, either way there has been an impressive wave of book buying this year. [Link; soft paywall]

Material Stories

How a ship-eating clam helped bring about the Industrial Revolution by David Fickling (Thread Reader)

An amazing rundown of how a desire to protect wood hulls lead to higher demand for copper, which led to more mines, and eventually led to the invention of the steam engine. [Link]

China’s Empire of Concrete by Mike Bird (WSJ)

Chinese municipalities long process of land privatization via sales of collectively owned property to the private sector have created a behemoth market that drives an impressive percentage of economic activity around the world. [Link; paywall]

Outflows

Cathie Wood’s Flagship Fund Posts Largest Outflow On Record by Claire Ballentine (Financial Advisor)

The most impressive asset-gathering story this year finished on a bit of a sour note, with tens of millions of assets flowing out of the ARK Innovation ETF (ARKK) at the end of the year. [Link]

Vaccination

Temperature Snag Delayed 144,000 Moderna Shots Bound for Texas by John Tozzi (Bloomberg)

Over 400 shipments of Moderna’s COVID vaccine sent to Texas had evidence that they had strayed above maximum storage temperature this week. [Link; soft paywall]

Social Media

The North Carolina Kid Who Cracked YouTube’s Secret Code by Lucas Shaw and Mark Bergen (Bloomberg)

A Greenville teenager dropped out of college to figure out exactly the best way to go viral. A bit over four years later, he is the king of YouTube. [Link; soft paywall]

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The 2020 market year is officially behind us, and for most of the ETFs in our Asset Class Performance Matrix is was a great year. The top-performing ETF in our matrix was the Nasdaq 100 (QQQ), which advanced 48.7% on a total return basis.  Fittingly, in second place silver (SLV) posted a gain of 47.5%.  Other big winners this year were large-cap growth (IVW), Consumer Discretionary, (XLY), Technology (XLK), Communication Services (XLC), and China (ASHR).  All of these ETFs posted annual returns of more than 25%.  On the downside, there were some big losers, though.  Oil (USO) lost two-thirds of its value, while Natural Gas (UNG) dropped 45%.  The only other ETFs that experienced declines of more than 20% were Brazil (EWZ) and Energy (XLE).

The middle column of our matrix shows each ETF’s total return since the 3/23 closing S&P 500 low.  There were some truly mind-boggling returns as SLV, India (PIN), Australia (EWA), the Materials sector (XLB), Mid Cap Value (IJJ), Small Cap Growth (IJT), Mid Cap Growth (IJK), the Russell 2000 (IWM), the Small Cap S&P 600 (IJR), and the Mid Cap S&P 400 (IJH) all advanced 90% or more.  Over that same span, the only ETFs that were down were long-term US Treasuries (TLT), UNG, and USO.

What was a very strong year for financial assets in 2020 was capped off with a strong December.  In the US, every major index ETF was up at least 3%, every sector was positive, and every international ETF finished in the green.  In fact, of the nearly 60 ETFs in the matrix, only three were down in December (IEF, TLT, and of course UNG).

In a year with some pretty crazy charts, the one below is right up there with some of the best.  After all the markets have been through this year, bot the S&P 500 and Long-Term Treasuries have seen nearly identical returns on a total return basis. That’s right, with just a few hours left in the trading year, the S&P 500’s total return in 2020 has been a gain of 17.6%, while Long Term US Treasuries, as measured by the B of A Merrill Lynch Long-Term Treasury Index has rallied 17.3%.  What makes this nearly identical performance all the more incredible is that on March 23rd, the performance gap between the two was more than 50 percentage points.

The fact that stocks and bonds have essentially seen identical returns this year isn’t typical.  The chart below shows the annual performance spread between the S&P 500 and long-term US Treasuries going back to 1978.  During that time, the S&P 500 has historically outperformed long-term US Treasuries by an average of 3.9 percentage points per year, but the average gap in performance between the two has been over 15 percentage points.  In the 43 years since 1978, there have only been seven other years where the performance spread between the two asset classes was less than five percentage points and just two years (1985 and 1992) where the performance spread was less than a percentage point.

The S&P 500 has returned to and held up around record highs in the past week, and bullish sentiment has risen hand in hand.  AAII’s weekly survey of individual investor sentiment rose from 43.57% up to 46.08% this week. While still off the peak of 55.84% from mid-November, bullish sentiment remains elevated relative to other readings not only this year but throughout the history of the survey. Given the bear market and a lack of recovery in sentiment until after the election was over and concrete vaccine news made headlines in November, the average reading on bullish sentiment in 2020 was 33.87%. That compares to the historical average over the life of the survey of 37.95%.

Last week saw bearish sentiment make a new low as it fell down to 21.99%; the lowest reading since the first week of 2020. That reversed this week as bearish sentiment rose nearly 5 percentage points to 26.8%.  Just as with bullish sentiment, even off of more extreme levels of the past few weeks, the current level of bearish sentiment is still low when compared to where bearish sentiment has been for most of the year.  This year, bearish sentiment averaged a reading of 38.83%, 12 points above current levels. As shown in the second chart below, that is the highest yearly average of bearish sentiment since 2009, and before that, 2008 and 1990 are the only years that have averaged higher readings of bearish sentiment.

It is more of the same with the bull-bear spread.  At 19.28, sentiment still largely favors bulls though not to the same extreme as November.  Current levels are not just well above those observed for most of the year, but also stand in the top decile of readings of the past five years’ range.

After rising back to levels not seen since the beginning of the year over the past couple of weeks, neutral sentiment saw a big drop this week of more than 7 percentage points rising from 34.4% to 27.12% which is just about in line with the average reading for 2020. That means that in the most recent week, investors appear to have become more polarized in their view of the markets, though, overall attitudes are more optimistic than pessimistic.  Click here to view Bespoke’s premium membership options for our best research available.