In a post last week, we noted that despite headlines suggesting the strength of the consumer, Consumer Discretionary stocks have been lagging the market in a major way recently. Another way to illustrate underperfromance is in the rolling 20-day performance of the S&P 500 versus the Consumer Discretionary sector.  As of last week, for example, the S&P 500 was up 4.1% over the trailing 20-trading days whereas the Consumer Discretionary sector was down over 1%.  That wide of a performance gap over such a short period of time has been extremely uncommon in the last ten years.  In fact, it has been non-existent.

The chart below shows the rolling 20-day performance spread between the S&P 500 Consumer Discretionary sector and the S&P 500.  Last week’s nosedive in this reading took it below -5% for the first time since coming out of the recession in May 2009!  Besides the fact that we haven’t seen a reading this low in so long, we would note that prior to 2009, these periods of short-term underperformance (and outperformance as well) were a lot more common, occurring every couple of years.  During the last recession alone, for example, there were at least four periods to both the downside and upside where the spread was wider than +/-5%. These wide performance disparities don’t only happen during recessions either.  During the 1990s, there were multiple occurrences to both the upside and downside. Want to see Bespoke’s most actionable insights in real-time?  Start a two-week free trial to Bespoke Premium for immediate access.

Small-caps have materially underperformed large-caps recently, but today the Russell 2,000 is having its day in the sun.  The Russell is currently up 1.9% on the day versus a gain of just 0.60% for the large-cap S&P 500, and as shown below, a new 52-week high would be made on a closing basis were the index to finish the day at or above current levels.  Want to see Bespoke’s most actionable insights in real time?  Start a two-week free trial to Bespoke Premium for immediate access.

Expanding the chart above from one year to two years shows that the index still has a ways to go to reach a new all-time high — a further gain of 7.6% in fact.

Below are some of our favorite charts published in our research notes and articles over the last week. 

As shown below, if the consumer is so strong, why are consumer stocks falling so far behind the S&P 500 lately?

Fridays are “gold” for the yellow metal!  Over the last 30 years, owning gold only on Fridays has resulted in a gain of 160.9%.  The next closest weekday is Monday with a gain of just 32%.

Are valuations stretched for US stocks?  They appear to be for a few sectors.  Technology is most notable with a P/E ratio that’s currently in the 99th percentile of all readings over the last 10 years.

While valuations in the Tech sector are getting extended, that’s because Tech stocks have been performing so well.  One sector whose stocks haven’t been performing well is Energy, where the average stock is 42% below its 52-week high!  You certainly wouldn’t be “buying high” by entering this space.

As shown below, the list of S&P 1500 stocks farthest below their 52-week highs is littered with Energy names that are down more than 2/3rd from their one-year peaks.

If the stock market seems quiet these days, it’s because we haven’t experienced a significant down day in quite some time.  As shown below, it has now been 33 trading days since we’ve seen just a 0.50%+ gap down at the open of trading for SPY.

When it comes to earnings estimates, note the big divergence lately between small-caps (Russell 2,000) and large-caps (S&P 500):

Monthly housing starts on a regional basis show a weakening Northeast region and a booming South.

After a rough year two, Trump’s market returns during the standard four-year Presidential Election Cycle have come roaring back in year three.  Overall returns for Trump have now doubled the average at this point in the cycle.

Finally, below is a look at the year-to-date performance of the four main “factor” investment styles.  Quality has been, well, quality, as this factor has outperformed value, momentum, and size.  Want to see Bespoke’s most actionable insights in real time?  Start a two-week free trial to Bespoke Premium for immediate access.

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.

Foreign Affairs

Unequal and irate, Latin America is coming apart at the seams by Daniel Cancel (MSN/Bloomberg)

An uprising against inequality in Chile, the usurpation of a left-wing government in Bolivia, populist leaders in Mexico and Brazil: a catalogue of the volatile political events in Latin America. [Link]

The Iran Cables (The Intercept)

700 pages of Iranian intelligence reports shed light on some of the country’s clandestine dealings over the past few years, including its involvement in Iraqi politics that has led to utter chaos in that country. [Link]

Inconspicuous Consumption

The House Liquor Of The Muslim World by Shuja Haider (The Outline)

How does a liquor brand become ubiquitous in a culture of tee-totalers? What starts as an investigation of Johnny Walker Black reveals a fascinating investigation of alcohol in the Muslim world. [Link]

Two of the Same Ultra-Rare Cars in the Same Town? Almost Impossible by A.K. Baine (WSJ)

One of the most rare cars in the country had a production run of only about 130, and two of them have ended up in Durham, North Carolina together 68 years later. [Link; paywall]

The American Dream

Personal loans are ‘growing like a weed,’ a potential warning sign for the U.S. economy by Heather Long (mySA/WaPo)

The rapid expansion of fintech lenders has driven huge growth in unsecured personal loans, which are helping crowd out other forms of lending. [Link; auto-playing video]

Blackstone Moves Out of Rental-Home Wager With a Big Gain by Ryan Dezember (WSJ)

After making a massive bet on single-family housing rentals in the wake of the financial crisis, Blackstone is finally exiting the space via the final sale of shares in its Invitation Homes investment. [Link; paywall]

World’s Rich Are Rattled and Seeking Old-Fashioned Security by Ben Stupples (Yahoo!/Bloomberg)

The business of protecting other peoples’ valuables is very, very old and has been very, very profitable for a long time, and with extreme wealth driven by both inequality and aggregate economic growth creating a flood of the ultra-wealthy, business is booming. [Link]

Disinformation Studies

Thousands flock to Wikipedia founder’s ‘Facebook rival’ (BBC)

A crowd-sourced and donor-funded Facebook competitor that pledges to never sell user data is starting to gain traction, even though it costs users $100 per year. [Link]

A Former Fox News Executive Divides Americans Using Russian Tactics by Nicole Perlroth (NYT)

Ken LaCorte runs a network of Facebook pages and news sites designed to divide and inspire wide sharing of their stories based on political anger. [Link; soft paywall]

How to recognize AI snake oil by Arvind Narayanan (Princeton University CITP)

As most investors are now aware, buzzwords related to big data and “AI” usually hide basically meaningless processes under the hood. [Link; 21 pages]

Social Studies

Growing sense of social status threat and concomitant deaths of despair among whites by Arjumand Siddiqi, Odmaa Sod-Erdene, Darrick Hamilton, Tressie Mcmillan Cottom, and William Darity (ResearchGate)

The authors argue that rising prevalence of “deaths of despair” are being driven by loss of superior status, basing their argument on the fact that nonwhites are experiencing many of the same socioeconomic pressures but have not seen a higher mortality rate in response. [Link]

Women Desert Trading Floors as Bias Blocks Path to Management by Charlotte Ryan (Bloomberg)

There are few women in management roles within FX businesses run by large global investment banks, and it’s not particularly mysterious why. [Link; soft paywall]

Small Blessings

Coldplay to put touring on hold for environmental reasons by Rory Sullivan (CNN)

The band has decided to turn down tours in order to reduce its impact on the environment. A noble motivation, and one that carries the positive externality of savings thousands from experiencing the band’s “music”. [Link; paywall]

Profiles

What Joe Biden Can’t Bring Himself to Say by John Hendrickson (The Atlantic)

What looks at first glance like a political profile is in actual fact a much more nuanced piece of writing about the author’s experience as a stutterer, told through the lens of Joe Biden’s own experience with stuttering. A unique piece of writing that defies categorical assessment. . [Link; soft paywall]

 Time

Days Gone By: Physics Offers Explanation To Why Time Flies As We Get Older by John Anderer (Study Finds)

A Duke University team discovered that increasingly complex nerve pathways really do slow down perceptions of time as humans age. [Link]

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Have a great weekend!

The US-China trade war continues to be stuck in the mud with comments today by the two countries’ presidents being a prime example of the back and forth banter that has been the case for the past year and a half.  Early this morning China’s President Xi Jinping said that the country is willing to make a deal but is also willing to “fight back”. A few hours after, President Trump announced that the deal is “potentially very close”. As with the mixed commentary from the two leaders, the countries’ equities are also looking quite different as US equities continue to reach towards all-time highs and Chinese equities sit firmly below their 52-week highs.

While the pullback this week for the S&P 500 leaves the index less than half of one percent below its all-time highs, Chinese equities by proxy of the Xtrackers CSI 300 A-Shares ETF (ASHR) is over 10% below its 52-week high of $30.72 that was put in place back on April 5th.  Since reaching that high, ASHR has continued to be stuck under resistance just over $29. The most recent failed test of this resistance took place earlier this month. A 1.69% decline today has left ASHR over 5% below this recent high. Additionally, for the first time since October 8th, ASHR has closed below both its 50 and 200-DMA.  While that could be taken as a bearish sign, the past few times the ETF has crossed below was followed by another run back up to that resistance near $29. Start a two-week free trial to Bespoke Institutional to access our interactive Chart Scanner, Trend Analyzer, and more.