While lately it seems as though all anyone is talking about is the concentration of market cap in the largest stocks in the S&P 500, you may be surprised to hear that small caps have actually been leading the charge higher from the market lows. It’s been neck and neck, but while the S&P 500 is up just over 31% from its intraday March low, the Russell 2000 is up over 32%.

Granted, the Russell 2000 is only outperforming the S&P 500 by a slim margin, but it’s micro-cap stocks that have stolen the show.  Since its low in March, the Russell Micro Cap Index is up 36% and actually back above its 50-day moving average for the first time since late February.  The index is still down much more from its highs than either the Russell 2000 or the S&P 500 and the index’s entire market cap is only $365 billion (less than the market cap of Walmart WMT), but from the lows at least, micro-cap stocks have been on fire.

The last four days have been especially strong for the smallest of the small stocks as the Russell Micro Cap index has risen at least 1% on each of the last four trading days, including a 3.8% gain today.  The Russell Micro Cap Index has only been around since 2006, but during that time there have only been two other periods where the index saw four straight days of 1%+ gains.  The first was in late October 2008 while the second was in August 2009. Back in October 2008, if you chased micro-cap stocks after their four-day rally, the next few months were pretty painful, but the occurrence in August 2009 came in the early stages of the bull market. Receive full access to our research and commentary with a free two-week trial to Bespoke Premium.

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 2020 Annual Outlook special offer.

State Lines

Escape from New York City by Anne Kadet (WSJ)

The COVID-19 pandemic has led to a flight out of the most dense urban area in the country, which has been hardest-hit by the pandemic; of course, only some can afford to run for the suburbs amidst the chaos. [Link; paywall]

Barr Threatens Legal Action Against Governors Over Lockdowns by Chris Strohm (Bloomberg)

In a strange inversion of the traditional ideological alignment over “states’ rights”, the Trump Justice Department is prepared to take governors to court to enforce reopening regardless of the health circumstances. [Link; soft paywall]

Investing

Stock Investments Lose Some Luster After COVID-19 Sell-Off by Justin McCarthy (Gallup)

Gallup surveys show a sharp decline in the share of Americans who view stocks as the best long-term investment, while more than one-third (the highest in years) view real estate that way. [Link]

AIMCo’s $3 Billion Volatility Trading Blunder by Leanna Orr (Institutional Investor)

Alberta Investment Management Corp, the pension and sovereign wealth manager for Alberta’s huge provincial public asset pile, has been burned by volatility trades that stemmed from the market blow-up this spring. [Link]

Sports

The NCAA saved money in case of a canceled March Madness. Then it spent it. by Will Hobson (WaPo)

A rainy day fund designed to keep college sports’ finances in order in case its hallmark tournament was cancelled got cashed out just a few years ago. [Link]

Social distancing takes a hit as Taiwan baseball teams brawl (AFP/Yahoo)

Given the success Taiwan has had containing its outbreak of COVID-19, the island has been able to keep baseball games going, but onfield brawls aren’t consistent with the need for social distancing. [Link]

COVID-nomics

Global Economic Effects of COVID-19 (Congressional Research Service)

The CRS is a fantastic public service, producing deeply researched and highly informed analysis for Congressional staffs at their request. This late April report details the likely impact of COVID across the global economy. [Link; 75 page PDF]

Wealth, Race, and Consumption Smoothing of Typical Income Shocks by Peter Ganong, Damon Jones, Pascal Noel, Diana Farrell, Fiona Greig, and Chris Wheat (University of Chicago Booth School of Business)

An analysis identifying worker-level consumption elasticity with respect to income shocks. While all households reduce spending 0.23% for every 1% decline in income, lower-income households reduce it by almost 0.4% for every 1% drop; in short, inequality and economic cyclicality are correlated. [Link; 84 page PDF]

Commodity Contango

Oil world zeroes in on Cushing, Oklahoma by Gregory Meyer (FT)

With the emergence of negative commodity prices, global futures markets are focused on Cushing, Oklahoma, a town with a tiny population and enormous role in global crude flows. [Link; paywall]

Farmers Are Starting to Destroy Their Pigs After Factories Close by Jen Skerritt, Michael Hirtzer, and Isis Almeida (Blooomberg)

Pig farmers from Quebec to Minnesota are euthanizing hogs in order to avoid paying for their upkeep as slaughterhouse capacity has been shuttered thanks to COVID-19 outbreaks in a few of the facilities. [Link; soft paywall]

Viral Update

COVID-19 Outbreak Associated with Air Conditioning in Restaurant, Guangzhou, China, 2020 by Jianyun Lu1, Jieni Gu, Kuibiao Li, Conghui Xu, Wenzhe Su, Zhisheng Lai, Deqian Zhou, Chao Yu, Bin Xu, and Zhicong Yang (CDC)

The flow of air within enclosed spaces appears to be an extremely important factor in mass-spreading events, or spreading events which take place on a somewhat smaller scale like this study of a restaurant in Guangzhou. [Link]

“Human challenge trials,” where healthy volunteers would be exposed to Covid-19, explained by Dylan Matthews (Vox)

Healthy patients who haven’t been exposed to coronavirus may need to be exposed to the virus after receiving potentially useful vaccines as part of a “challenge trial” though the ethics of putting volunteers at risk are dicey ground. [Link]

Controversial idea to speed coronavirus vaccine gains ground by Peter Sullivan (The Hill)

Members of Congress are signing up to the idea that challenge trials may be a useful way to fight COVID-19 and identify the best vaccines. [Link]

Front Line Stories

A New Doctor Faces The Coronavirus In Queens by Rivka Galchen (The New Yorker)

An emergency room doctor at Elmhurst Hospital, a ground zero for the Queens COVID outbreak, shares what the experience has been like and who it has hit the hardest. [Link]

Emergency room doctors facing pay cuts and understaffing during pandemic by Nikki Battiste (CBS Evening News)

Despite surging demand for emergency department resources across the country, ER doctors are taking 40% pay cuts and bearing the brunt of the financial impact. [Link; auto-playing video]

Viral Travels

‘We Needed to Go’: Rich Americans Activate Pandemic Escape Plans by Olivia Carville (Bloomberg)

The combination of wealth and paranoia is being perfectly met by New Zealand, which is a hotbed for survival bunkers which are popular with the wealthiest tier of Americans fleeing the Coronavirus. [Link; soft paywall, auto-playing video]

Empty resorts spell long crisis for Caribbean as coronavirus hits (Reuters)

With international travel essentially zeroed out amidst the shutdown of borders, there have been virtually no visitors to Caribbean locales that usually host a bustling trade in tourism. [Link]

Social Shifts

‘Staying Nimble’: How Small Businesses Can, and Do, Shift Gears by Amy Haimerl (NYT)

Plunging demand for sit-down restaurants has opened up niches for alternative forms of small business, even if the overall market has shrunk considerably. [Link; soft paywall]

‘It’s Going to Be a Lot More Lonely.’ A Dramatically Different Ramadan for U.S. Muslims Amid Coronavirus Lockdowns by Sanya Mansoor (Time)

Ramadan, the global month of fasting during daylight observed by more than one billion Muslims around the world, will be a very different affair this time around. [Link]

Three Hours Longer, the Pandemic Workday Has Obliterated Work-Life Balance by Michelle F. Davis and Jeff Green (Bloomberg)

After six weeks of working from home, white-collar workers around the country are getting tired of longer work hours, less continuity, and the burdens of childcare. [Link; soft paywall, auto-playing video]

Tragedy

After He Died Of The Coronavirus, She Opened Up His Phone And Found His Last Words To Her by Julia Reinstein (BuzzFeed)

This story of a man separated from his wife and young daughter forever by COVID-19 brought tears to our eyes, and illustrates the massive danger from the disease even in statistically lower-risk groups. [Link]

Vulnerability

You’ve Got (0-click) Mail! (ZeCops)

A flaw in the iOS email app allows an attacker to take control of Apple devices using an email sent to the device in question. [Link]

Media Studies

Misinformation During a Pandemic by Leonardo Bursztyn, Aakaash Rao, Christopher Roth, and David Yanagizawa-Drott (Becker Friedman Institute)

Viewers of Fox News content that expressed an earlier embrace of the dangers of COVID tended to lead to better outcomes related to the disease at the county level. [Link]

Read Bespoke’s most actionable market research by joining Bespoke Premium today!  Get started here.

Have a great weekend!

The average stock in the Dow Jones Industrial Average is down 16.24% on a total return basis so far in 2020.  Below we take a look at how the “Dogs of the Dow” strategy has performed so far this year.

The “Dogs of the Dow” strategy is a very passive approach that simply says to buy the 10 stocks in the Dow 30 that have the highest dividend yields at the start of each year.  The Dogs list for 2020 was led by Dow Inc. (DOW) with a yield of 5.12% on January 1st.  Exxon Mobil (XOM), IBM, Verizon (VZ), Chevron (CVX), Pfizer (PFE), 3M (MMM), Walgreens (WBA), Cisco (CSCO), and Coca-Cola (KO) are the nine other members of the Dogs for 2020.

As shown in the table below, the Dogs are down an average of 19.37% on a total return basis in 2020, which is a little less than five percentage points worse than the 14.68% decline seen for the 20 non-Dogs this year.  Dow Inc. (DOW) and Exxon Mobil (XOM) have been the two worst performing Dogs with respective YTD declines of 39.9% and 37.0%.  Dow’s dividend yield has risen from 5.12% up to 8.47%, while XOM’s yield has risen from 4.99% up to 7.91%.  There are no Dogs that are up on the year, but Verizon (VZ) and Pfizer (PFE) have been the best performers of the group with YTD declines of less than 5%.

Of the non-Dogs, Boeing (BA) has been by far the worst performer with a YTD decline of 60.01%.  At the start of 2020, BA had a dividend yield of 2.52%, but that dividend has been suspended.  JP Morgan (JPM), American Express (AXP) and Disney (DIS) have all fallen more than 30% YTD, while Johnson & Johnson (JNJ), Walmart (WMT), and Microsoft (MSFT) are the only three Dow stocks that are up on the year.  Read our weekly Bespoke Report newsletter released every Friday with a two-week free trial to Bespoke Premium.

We’re now two weeks into the Q1 2020 earnings season, and just over 200 companies have reported their numbers so far.  The average one-day price change for the stocks that have reported earnings so far this season has been a gain of 0.89%.  That’s much stronger than the average one-day gain of 0.06% seen for all stocks that have reported earnings since 2001.

As shown below, stocks that have beaten EPS estimates this season have averaged a one-day price gain of 2.16% on their earnings reaction days.  That’s stronger than the average one-day gain of 1.89% seen on earnings reaction days for all stocks that have reported since 2001.  Stocks that have missed EPS estimates this season have seen a one-day decline of 0.72% on their earnings reaction days.  Historically, the average stock that has missed EPS has fallen 3.56% on its earnings reaction day, so this season’s decline of just 0.72% suggests that investors are basically giving a pass to companies missing estimates in Q1.  Read our weekly Bespoke Report newsletter published every Friday with a two-week free trial to Bespoke Premium.

Even though most economic data releases this week that had forecasts exceeded those estimates (10 of 15), data continues to come in very weak. The Chicago Fed’s National Activity index started off the week coming in at –4.19 which was well below estimates of –3. Existing home sales followed up on Tuesday, and despite coming in above estimates, sales slowed considerably from February. Elsewhere in housing data, new home sales collapsed down to 627K SAAR compared to 765K last month. Meanwhile, February home prices showed some acceleration. Jobless claims also were better than expected, but they too remain at extremely elevated levels relative to the rest of history. Manufacturing data was a major area of weakness this week. Both the preliminary Markit PMI and Kansas City Fed reading fell significantly despite coming in better than forecast. Hard manufacturing data on Friday was likewise bad at the headline level though under the hood there were some silver linings.

Turning to next week, like the earnings calendar, the economic calendar ramps up with a total of 34 releases. We will get the final two regional Federal Reserve indices from Dallas and Richmond on Monday and Tuesday, respectively, followed by the final Markit and ISM reading for April on Friday. Wednesday will be the most closely watched day of the week with the first release of Q1 GDP as well as an FOMC rate decision. Growth in the first quarter is expected to show a 3.8% contraction. Although no change in rates is being forecast, Fed Chair Powell’s following presser will likely be closely watched for a monetary policy update. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

The earnings calendar has begun to ramp up over the past two weeks and over the next two weeks we will see peak earnings season.  Next week there are a total of 784 companies scheduled to release earnings.  Of those, there are 178 S&P 500 stocks, which is 35.% of the index.

In the table below we show the 30 largest stocks (by market cap) that are scheduled to report next week. None of the largest stocks report on Monday, but the two Dow pharmaceutical stocks, Merck (MRK) and Pfizer (PFE), kick things off Tuesday morning. The trillion dollar market cap club will all report next week with Microsoft (MSFT) out with earnings Wednesday night and Apple (AAPL) and Amazon (AMZN) out the following evening. Two other notable releases Wednesday and Thursday, respectively, will be the major payment processors Visa (V) and Mastercard (MA).  Friday will be capped off with two oil giants: Exxon Mobil (XOM) and Chevron (CVX).  Other honorable mentions not on this list reporting next week include industrial bell-weather Caterpillar (CAT), stocks likely benefiting from the COVID economy like Colgate Palmolive (CL) and Clorox (CLX), and finally, some travel and leisure stocks like Expedia (EXPE), Royal Caribbean (RCL), United Airlines (UAL), and Southwest Airlines (LUV).  Keep track of all upcoming earnings with our Earnings Explorer.  Start a two-week free trial to Bespoke Premium to access Earnings Explorer tool and more.

Today’s preliminary report on manufacturers’ new orders, sales, and inventories was mixed, with a huge headline drop but stronger results under the hood…especially relative to disastrous manufacturing sentiment series in March and April. Leaving aside the broader implications of the report, we wanted to highlight one series in particular. With Boeing (BA) reeling from the ongoing problems with its 737-MAX design and the global shock to its customers in the form of COVID-19, the US aerospace industry is under immense pressure. Things are so bad that orders are being canceled faster than new orders are placed. That situation is not without precedent; it applied for a stretch in 2008-2009 as well. But the scale of net negative order growth is much, much larger this time around. Across all US manufacturers in March, $16.35bn more orders were canceled than new orders received.  Start a two-week free trial to Bespoke Institutional to access our Chart Scanner, custom screens, and much more.