As we noted last night, yesterday’s rally was strong across each of the different industry groups. That also holds true across various geographies. The table below shows the performance of the ETFs tracking the various countries in our Global Macro Dashboard. Like the US, many global equity markets have fallen dramatically over the past couple of months but have seen sizable rallies averaging a gain of 16.27% more recently. Australia (EWZ), Canada (EWC), and Norway (ENOR) have risen the most since the US’s 3/23 bottom, each rising over 25%.  That is after a strong session yesterday where some of the top performers were those that had fallen the most from 2/19 through 3/23 like South Africa (EZA), Australia (EWA), and Brazil (EWZ). As for EWZ, it had fallen the most significantly from 2/19 through 3/23 (over 50%) which still leaves it down the most YTD and since 2/19 even after its 12.68% rally since 3/23. On the other hand, another one of the worst performers during the initial sell-off, Mexico (EWW), has seen the smallest rally since 3/23 only rising 7.76%.  Despite the smaller rally, it is still down less since 2/19 and YTD than Brazil. Start a two-week free trial to Bespoke Institutional to access our Global Macro Dashboard, Trend Analyzer, Chart Scanner, and more.

It was a strong day on Wall Street as every industry group finished the day higher with many posting big gains on the session.  Consumer Services and Automobiles & Components both rose double digits with Consumer Durables & Apparel and the Semis not far behind.  Despite that large rally, the auto industry is the group that is currently furthest from its levels on the 2/19 high and is posting the largest YTD loss.  Its performance is even slightly worse than that of Energy which was the biggest loser during the worst of the sell off.

Contrary to the strong performance for autos today, Energy, which fell over 50% from the February 19th peak to the March 23rd bottom, rose about the same amount as the Food & Staples Retailers which only fell 11.4% during the sell-off and remains the closest industry group to its 2/19 levels.  Since the market bottomed on March 23rd, the Energy sector has risen the most at 33.17%. Even with that rally, it is down the second most (47.19%) year to date. Start a two-week free trial to Bespoke Institutional to access all of our research and interactive tools.

The last several weeks have been a tough time for just about every sector of the market.  While there have been some individual stock winners, every major sector is down and down sharply.  Some groups have held up better than others, but no area has been spared.  We’ve written a lot over the years about how semiconductors are the lifeblood of the 21st-century economy.  Semis are ubiquitous in every facet of our lives and in this stay-at-home and work-from-home world the COVID-19 outbreak has thrust upon us, the statement has never been more true.

At the same time that semis have seen a more prominent role in the economy, oil, which was arguably the life-blood of the 20th-century industrial economy, has seen its role diminished even more than it had already been.  With everyone working from home, there’s barely a car on the road.  Just look at this chart showing the speed of evening commutes across US cities during the week of 3/20 relative to the week before.  Commute times are faster in just about every major city and in some cases much faster.  Keep in mind too that this is data as of 3/20, and there are even fewer cars on the road now.

Given the acceleration of an already emerging trend, we wondered how this shift has been showing up in the market.  Since the S&P 500’s record high on 2/19, the SOX index of semiconductor stocks has dropped just under 20%.  That’s a pretty horrific decline in such a short period of time, but it’s less than half of the decline of the Energy sector which is down over 40%!  The chart below compares the relative strength of the Philadelphia Semiconductor Index (SOX) to the Energy sector going back to the early 1990s.  In the chart, a rising line indicates that the semis are outperforming energy, and vice versa for a falling line.  On the right side of the chart, we have also enlarged the period since the start of 2019 so you can see more detail.

What’s really notable about this chart is that in just the last two weeks, the relative strength of the SOX has hit a record high after first overtaking the prior record high from March 2000.  Just a few months ago, it seemed like it would be years before the relative strength of the SOX would ever eclipse the record high it made at the peak of the dot-com bubble.  At that time, no one would have guessed that the catalyst for taking the SOX over the hump would be the swiftest bear market in history!  Start a two-week free trial to one of Bespoke’s three membership services to see our best and most actionable market analysis.

Economic data has continued to show the adverse impact of the coronavirus, but the bulk of last week’s economic data actually came in better than estimates or the prior period.  One of the main points of weakness has been manufacturing data. The last of the regional Fed indices, the Dallas Fed, came out last week with a massive decline to -70 compared to estimates of -10.  While ISM’s headline number held up and even beating estimates, under the hood, it was much weaker with a collapse in New Orders.  Jobless claims have continued to surge and were once again a major focus of the week’s data after rising to 6,648K.  But claims were not the only labor data point out last week.  Friday’s nonfarm payroll report saw the biggest miss relative to expectations on record and the first decline in nearly a decade.

Turning to this week, the data slate will lighten up quite a bit.  Today there are no releases scheduled with the February JOLTS report and Consumer Credit data kicking things off tomorrow.  The last reading for JOLTS showed a massive decline and miss.  Elsewhere in labor data, jobless claims are forecasted to moderate slightly. Granted, they are still expected to print around 5 million.  PPI and CPI inflation data are also on the docket set to be released Thursday and Friday, respectively.  Although there is some data being released on Friday, markets will be closed due to the Good Friday holiday. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Markets understand pretty well just how badly earnings are going to be hit in 2020, and we’ll start to get a more specific view of that with earnings reports that start next week. There’s a good argument to be made that longer-term earnings should be the touchstone for equity valuation, looking past the near-term COVID shock to EPS. With that in mind, how cheap are stocks getting relative to estimated earnings in the longer-term? As shown in the chart below, not very much. Multiples on calendar 2021 EPS estimates were 20.9x on average in February, versus 16.2x today. That’s certainly a notable compression, but it’s not anything we would call dramatic. On a median basis, the compression has been from 17.4x to 13.3x, again nothing overly dramatic. There’s a compelling case to be made for US stocks given the recent peaking of European new case counts and flattening of US case counts in major outbreak states, of course. But valuation doesn’t seem to be as compelling as a justification for owning the market here.  Start a two-week free trial to one of Bespoke’s three premium memberships to see our best and most actionable market analysis.

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.

Small Business

Poll: Almost one in four small businesses are two months or less away from closing permanently by Alex Gangitano (The Hill)

A US Chamber of Commerce/MetLife pole showed large swathes of the small business landscape could disappear in short order without help. [Link]

Banks stand to make billions from US small business rescue by Brendan Greeley & Robert Armstrong (FT)

With a cash payment as incentive to originate and service loans, banks stand to gain billions of revenue from helping small businesses access the $350bn in small business funding included in the CARES Act. [Link; paywall]

Private Equity Frets That It’s a Loser in $2 Trillion Virus Bill by Robert Schmidt & Heather Perlberg (Bloomberg)

Private equity firms are worried that firms they own may not be eligible for small business loans because of the definition of “small business” in the bill. [Link; soft paywall]

Investing

How to safely take money from your retirement account now by Josh Brown (The Reformed Broker)

A series of helpful Q&As regarding the tax consequences of using retirement funds to get through the current COVID-19 crisis. [Link]

How I Learned to Stop Worrying and Love the Bear Market by Spencer Jakab (WSJ)

Why waiting for clear signal that the worst pain is over makes it more likely that you’ll miss all of the upside during bull markets which follow big down-drafts. [Link; paywall]

National Response

National coronavirus response: A road map to reopening by Scott Gottlieb (AEI)

Mass testing, expanded surveillance, improvements in the supply chain, and new options for treatment are necessary steps for the US and other countries to deal with COVID-19. [Link]

The U.S. Tried to Build a New Fleet of Ventilators. The Mission Failed. by Nicholas Kulish, Sarah Kliff & Jessica Silver-Greenberg (NYT)

The story of an innovative and cheap new design for a ventilator that would have entered the national stockpile if its designer hadn’t been bought out by a company with opposing interests. [Link; soft paywall]

Mass testing, empty ICUs: Germany scores early against virus by Frank Jordans (AP)

German scientists and public health officials were far ahead of the rest of Europe in designing and implementing testing. [Link]

Social Distancing

Anatomy of an Outbreak: How Coronavirus Swept Through JPMorgan’s Trading Floor by Rob Copeland & David Benoit (WSJ)

A sick employee made it in to the office to support huge trading volumes on March 9^th, but appears to have spread COVID-19 to about 20 coworkers, illustrating the conflict between containing spread and keeping business moving. [Link; paywall]

Social Distancing in New York City by Michiel Bakker, Alex Berke, Matt Groh, Alex ‘Sandy’ Pentland, & Esteban Moro (Medium)

An impressive summary of how the New York region is responding to stay-at-home orders and efforts to restrict movement. [Link]

What Social Distancing Looked Like in 1666 by Annalee Newitz (NYT)

The Black Death, caused by the bacteria yrsinia pestis, is one of the original examples of mass pandemics, and the response of society has much to teach us today. [Link; soft paywall]

Economic Fallout

Stabilizing State and Local Budgets through the Pandemic and Beyond by Alexander Williams (Levy Economics Institute of Bard College)

The author proposes an automatic stabilizer program that provides unrestricted grants to state governments from the federal government using a formula based on unemployment rate changes. [Link; 4 page PDF]

The coronavirus economic crisis is here. Unemployment office workers are on the front lines. by April Glaser (NBC)

As 10 million workers in two weeks slam the unemployment insurance system, workers are on the front lines of the response underway to prevent the worst economic fallout. [Link]

Rent

This Brooklyn Landlord Just Canceled Rent for Hundreds of Tenants by Matthew Haag (NYT)

A landlord with 18 buildings hosting between 200 and 300 tenants cancelled rent for April, a piece of generosity that tenants say isn’t out of character. [Link; soft paywall]

Kids

Remote learning is turning out to be a burden for parents by Karol Markowicz (NYP)

While the technological underpinnings of distance learning are sound, the expectations and push-and-pull between students, teachers, and parents is starting to grate. [Link]

Toy sales surge as coronavirus pandemic keeps kids home by Lisa Fickenscher (NYP)

In order to entertain children, parents are shelling out cash for anything that can hold their attention for a couple of hours. [Link]

Changing Demand

What Everyone’s Getting Wrong About the Toilet Paper Shortage by Will Oremus (Marker)

Could people be buying more toilet paper than usual simply because they are spending more time at home and therefore can’t use toilet paper supplied to public facilities? [Link]

Booze buying surges; senators push airlines for cash refunds (AP)

A rundown on some of the economic effects of the COVID-19 pandemic, which includes a staggering 55% increase in alcohol sales for the week as Americans turn to tipple during this time of stress. [Link]

While Many Restaurants Struggle, Here’s How One Is Thriving by Joe Ray (Wired)

Restaurateur Eric Rivera has shifted his Puerto Rican-influenced Seattle eatery Addo into the COVID world, which includes a unique range of delivery offerings and gives customers the ability to offer meals to the homeless via “pay it forward” bowls. [Link]

Military Matters

China seizes Covid-19 advantage in South China Sea by Richard Javad Heydarian (Asia Times)

With the rest of the world focused on dealing with viral outbreaks, China has ramped up activity in the contested waters it claims against a number of other countries. [Link]

China Concealed Extent of Virus Outbreak, U.S. Intelligence Says by Nick Wadhams & Jennifer Jacobs (Bloomberg)

Classified US intelligence estimates show that Chinese case counts and deaths are far above official numbers reported to the outside world, based on anecdotal reports and other data sources. [Link; auto-playing video, soft paywall]

Air Force Academy relaxes social-distancing rules after cadet suicides by Yaron Steinbuch (NYP)

Stress is running high for cadets that have to cope with lockdown conditions which may have led to multiple suicides on campus. [Link]

Weird Science

Key ingredient in coronavirus tests comes from Yellowstone’s lakes by Maya Wei-Haas (National Geographic)

A thermal pool in Yellowstone National Park yielded an unusual microbe which produces enzymes that is today a key input to PCR tests necessary for COVID-19 detection. [Link]

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Have a great weekend!

The S&P 500 has averaged a daily change of -0.35% so far in 2020, which is a horrific number.  Keep in mind too, that up until late February, the market was still up YTD, so these negative numbers a primarily a result of the last six weeks! For some perspective, if the S&P were to continue averaging a daily decline of 0.35% for the remainder of the year, the index would be at 1,335.3 on the last day of 2020 for a YTD decline of 58.7%.  That would represent at 45% drop from the S&P’s current level of 2,448.

Below is a look at the average daily performance of the S&P 500 by weekday so far in 2020.  Mondays have been by far the worst with an average decline of 1.54%.  Wednesday, Thursday, and Friday have all seen similar returns with average declines around the -0.50% level.  Tuesdays have been the lone bright spot during the week with an average gain of 1.12%.  Thank goodness for Turnaround Tuesday!  Start a two-week free trial to one of Bespoke’s three premium memberships to see our best and most actionable market analysis.