Bespoke’s Daily Sector Snapshot (view sample here) is a popular one-page report that subscribers use to stay on top of sector themes.  One data point that has stood out recently is where valuations stand within their historical ranges (past ten years).  As shown below, the only sector with a current valuation that’s in the bottom half of its range over the last ten years is Financials.  Every other sector is currently trading with a valuation above the 60th percentile.

Utilities and Technology are currently extremely elevated in the 97th and 99th percentiles, respectively. The trailing price-to-earnings ratios for Consumer Discretionary and Communication Services are also in the top 10% of all days of the past 10 years.  Finally, the S&P 500 as a whole has a current P/E that is higher than 89.1% of all readings over the last ten years.

The chart below shows the Technology sector’s trailing price-to-earnings ratio over the past ten years.  In the time since the dramatic sell-off around this time last year, valuations have more than recovered rising from a low of 16.11x earnings on January 3rd to 24.75 on Friday. In the chart below, the red dots indicate the only times that Tech had a higher P/E than now over the last ten years. As shown, in the past decade there have only been a handful of times, just nine trading days in fact, that the Tech sector’s P/E ratio moved above 24.75; 0.4% of all days in that time frame. Those days came in two pockets. One in February and March of last year and the other in late December of 2009.  While Tech is at a premium compared to the past decade, it is still well off of levels from the late 1990’s/early 2000’s around the time of the tech bubble.  The current valuation would need to more than triple to reach the 1999 peak of 82.62x earnings.  Start a two-week free trial to Bespoke Institutional to access our Daily Sector Snapshot and much more.

After its largest ten-month increase in more than six years, homebuilder sentiment unexpectedly cooled in November.  According to the NAHB, while overall homebuilder sentiment was expected to remain unchanged, the headline index actually declined from 71 down to 70.  While this month’s sentiment report was slightly weaker than expected (economists were expecting a reading of 71), the modest decline should not come as too much of a surprise given the large uptick in long-term rates since the last report.

The table below breaks down this month’s report by various factors as well as on a regional basis.  While both Present Sales and Traffic were down, sentiment towards Future Sales actually increased slightly, and at the current level of 77 is not far from its high in early 2018.

While sentiment was down on a national level, the only area of the country where sentiment was down was in the South where optimism had been at its highest level in more than ten years.  Outside of the South, sentiment was actually higher in every other region, including the Northeast and West where sentiment is right near ten years highs.  Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.

While back below that level now, Friday’s close marked the 28th 1,000-point threshold that the DJIA crossed on a closing basis for the first time, and it was the first such cross of one of these thresholds in more than four months. While the financial media used to (and to a degree still does) make a big fuss about the DJIA crossing a 1,000 point level for the first time, these days it just isn’t what it used to be.  The table below lists each 1,000 point threshold that the DJIA has crossed in its history.  For each level, we also list the date the DJIA first crossed the 1,000 point level, how many days passed since the prior 1,000 point threshold, what percentage that threshold was of the index’s total level, and then how many times the DJIA has crossed above and below that level (on a closing basis).

When we said 1,000 points isn’t what it used to be, we meant it.  As shown in the table, these days 1,000 points on the DJIA is only a 3.6% move, and the path from 28K up to 29K will be less than 3.5%. With the DJIA at much higher levels now, the 127-day rally from 27,000 to 28,000 is much less impressive than the 1997 move where the DJIA rallied from 6,000 to 7,000 (a 14% rally) in just 122 days.  Additionally, while it took 540 days for the DJIA to go from 26,000 up to 27,000, it only took 421 days for the index to cross the prior eight 1,000 point levels!

Another interesting aspect of the DJIA’s path through 1,000 point thresholds is how many times it crossed each one of them.  10,000 and 11,000 were especially difficult levels for the DJIA to put through the rearview mirror.  The index crossed above or below 11,000 on 87 different occasions and 10,000 67 times. While those were extreme levels of congestion for the DJIA, two levels it glided right through were 5,000 and 19,000.  These are the only two 1,000 point levels from which the index has never looked back after first crossing above them. Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.

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.

While you’re here, join Bespoke Premium for 3 months for just $95 with our 2019 Annual Outlook special offer.

Florida

Florida’s Sunshine and Tax Benefits Beckon Billionaires by Juliet Chung and Joseph de Avila (WSJ)

The wealthiest are trading New York winters for endless summer, but low taxes are almost certainly a bigger impetus for the zip code shifting. [Link; paywall]

Fuel-theft rings fill South Florida roads with ‘moving bombs’ by Mario Ariza (South Florida Sun Sentinel)

The weather is good but the crews stealing fuel and transporting the proceeds in SUVs are a much less wonderful feature of life in South Florida. [Link; auto-playing video]

Economics

Do Ridesharing Services Increase Alcohol Consumption? by Jacob Burgdorf, Conor Lennon, and Keith Teltser (SSRN)

Increasing access to on-demand transportation has led people to imbibe more aggressively as concerns about the need to drive home have disappeared. UberX entry to a market led to a 9% increase in the prevalence of heavy drinking. [Link]

From Plantations to Prisons: The Legacy of Slavery on Black Incarceration in the US by Melissa Rubio (Dropbox)

In her job market paper, the author identifies a link between counties’ dependence on slavery and the black male incarceration rate immediately after the abolition of slavery and through to contemporary times. [Link; 58 page PDF]

The Effect of District Attorneys on Local Criminal Justice Outcomes by Sam Krumholz (SSRN)

Electing nonwhite district attorneys leads to a 10% decline in incarceration, without any significant impact on local crime or arrest rates. In other words, the choice of district attorney has a big impact on how many people are in jail, but little effect on crime rates. [Link]

Legal Drama

Customer: Wine spill on Hermès bag was $30k mistake. Country club: Our waiter should pay by Rodrigo Torrejon (USA Today)

A New Jersey country club is trying to fob off a ridiculous lawsuit from a customer on one of its employers, the latest in a long string of ridiculous workplace suits. [Link; auto-playing video]

He told a kid to slide. Then he got sued. by Steve Politi (NJ.com)

Instructing a player to slide into third base is now grounds for years of lawsuits. It’s hard to imagine it could get more ridiculous than this most recent litigious lunacy from New Jersey. [Link]

How to Conduct Business with Chinese Companies That See a Dark Future by Dan Harris (China Law Blog)

An extremely interesting rundown on the current legal backdrop in China, where the trade war and a slowing economy are provoking a variety of legal activities that can catch customers abroad by surprise. [Link]

Football

Notre Dame Football Sellout Streak Set to End After 46 Years by Sara Marley (Bloomberg)

It’s been a disappointing run for the Fighting Irish, who may fail to sell out a game for the first time since 1973 in a fight against ranked opponent Navy this weekend. [Link; soft paywall]

The Line of Fire by Natalie Weiner (SBNation)

With gun violence reaching into schools, it should be no surprise that football coaches are on the front lines in trying to keep young people safe. [Link]

Algos Gone Wild

IBM hopes to change weather forecasting around the globe using big data and a new supercomputer by Steve Liesman (CNBC)

Weather models are getting an upgrade, with a new model that uses its new supercomputer DYEUS to model weather in 2-mile blocks (one-third to twenty percent of the smallest units in more traditional models). [Link]

AI can predict if you’ll die soon – but we’ve no idea how it works by Donna Lu (New Scientist)

An interesting example of a machine learning technique picking up on something that a traditional evaluation of data can’t: risk of death based on to electrocardiogram data. [Link]

Goldman faces probe after entrepreneur slams Apple Card algorithm in tweets (Reuters)

A widely-followed VC helped spark outrage over the credit limit assignment process for the new Apple credit card that Goldman Sachs issues. [Link]

Hidden Costs, Hidden Benefits

New Report Examines the Impact of Instagram’s Hidden Likes Experiment on Influencer Engagement by Andrew Hutchinson (Social Media Today)

A study found that hiding likes reduced the number of likes for posts across a range of account sizes, consistent with the thesis that removing like totals reduces engagement. [Link]

The move to free stock trading led to a big jump in new accounts for Charles Schwab by Maggie Fitzgerlad (CNBC)

Removing commissions in response to Robinhood, Charles Schwab reported 142,000 accounts opened in October, up 31% MoM as free trading gains traction. [Link]

Investing

Strategists Foresee ‘Boiling Point’. Investors Risk Up. by Christine Idzelis (Institutional Investor)

Investors have pivoted to a very positive outlook that has investors all sorts of nervous. While fund managers are optimistic, their allocations to equities are only at one-year highs. [Link]

Mars

The Curiosity rover detects oxygen behaving strangely on Mars by Ashley Strickland (CNN)

A strange seasonal pattern of oxygen levels has been picked up by the Curiosity rover on Mas, which may point to a variety of new geological possibilities. [Link]

Renewables

Wind Turbines Are Getting Wild by Caroline Delbert (Popular Mechanics)

A new superconducting material is offering possibilities for wind turbines that would result in dramatic efficiency gains and lowered costs. [Link]

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Have a great weekend!

This morning saw one of the first looks at November activity with the NY Fed Empire Manufacturing report.  Economists weren’t expecting much of a strong report to begin with as the consensus forecast for the headline General Business Conditions index was for a reading of 6.0 vs last month’s reading of 4.0.  The actual reading actually showed a slight decline from last month, though, falling to 2.9. While the current conditions index declined, expectations actually saw a small boost rising from 17.1 up to 19.4.

One interesting thing to note is how little Empire Manufacturing has changed in recent months.  With monthly readings of 4.3, 4.8, 2.0, 4.0, and now 2.9, the index has had a five-month range of just 2.8 points.  In the history of the survey dating back to 2001, the only five-month window with a narrower range was in late 2011!

In terms of plans for Capital Expenditures and Technology Spending over the next six months, it was encouraging to see both of these readings rebound after falling sharply in recent months.

Finally, the table below shows the month/month change for each category of the Empire Manufacturing report in terms of both current conditions and expectations.  What’s interesting to note about this month’s data is that while there was broad-based weakness in terms of current conditions, expectations rebounded, suggesting that manufacturers are expecting an upturn from current conditions.  Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.