Roaring or oring?

of 37 The Bespoke Report 3/12/21 BespokePremium.com

For Personal Use Only—Do Not Forward or Redistribute

“What’s it like around there? Are you allowed outside?”

A year ago this week, Emmy award-winning New

York Governor Andrew Cuomo made headlines

when he announced that he was declaring a one-

square mile portion of the city of New Rochelle, NY

as a COVID ‘Containment Zone’ and would be de-

ploying the National Guard to the region.

Given the proximity of our offices in Harrison, NY to the region of the country’s first ‘Containment

Zone’, we received inquiries from clients around the country asking us what it was like. When we told

them that the only difference between life before and after the declaration of the containment zone

was that schools and churches in the area were forced to close, they didn’t believe it. Compared to the

numerous stories showing pictures of military vehicles in the street and boarded up stores, they were

under the impression that the entire area was under martial law.

But the National Guard wasn’t deployed to occupy the city of New Rochelle. They were assisting at a

newly set up mass testing site and distributing meals for lunch programs at schools that were forced to

close by the governor’s order. And the boarded stores shown in press accounts? They were all busi-

nesses that had already been closed for months if not years before anyone had ever even heard of

COVID. Remember, even before COVID the environment for brick and mortar retail was challenging at

best, and many independent stores had already surrendered to the onslaught from Amazon and other

large retailers with an online presence. It’s why we launched the Death by Amazon Index years ago!

Other than the church and school closures, there were no other restrictions in place and all other

stores and business in the area were free to remain open. Don’t get us wrong. Just like the rest of the

world, COVID ultimately had a major impact on the area, but the picture portrayed by a number of ini-

tial press accounts of the containment zone was far different than the facts on the ground.

Besides this week marking the one-year anniversary of the original declaration of the Containment

Zone, what’s the point of this story? It helps to serve as a reminder to investors that not just during

periods where conditions are fluid, but also in calmer times, reports you often hear are not always cor-

rect and are often slanted by a narrative of the person reporting the news, giving advice, or looking to

close the sale.

If a reporter is looking to report that a city is under military occupation, they are going to show pictures

of military vehicles, empty streets, and images of dilapidation. Similarly, a CEO doing the media rounds

will probably only highlight the positive aspects of the business while leaving out the lagging units or a

pending legal issue. When you’re looking to buy a new appliance, the salesperson could very well be

leaving out the fact that the commission on the dryer they are trying to sell you is higher than on the

cheaper higher quality option in the back of the store.

As an investor, it’s important not to act solely on the actions and information of one specific source.

You should always gather as much information as you can in order to confirm or dispel a given narra-

tive. Now on to this week’s report!

Roaring or Boring?



With vaccines in the US ramping up at a rapid pace, we wanted to start out this week with a discussion

of the latest COVID trends both here in the US and around the world. First, we wanted to look at vac-

cines and see how their rollout has impacted trends.

To see how the vaccine rollout has impacted aggregate cases, we wanted to compare four countries.

Two are relatively small (UK, Canada) versus their larger neighbors (US, EU). Two are rapidly expanding

vaccinations (UK, US) while two are struggling (Canada, EU). Two have had very elevated case loads

(UK, US) while two have managed better (EU, Canada). All are in the northern hemisphere and show

similar seasonal patterns for cases and deaths, broadly speaking.

• In the charts at right we show COVID cases

and deaths relative to population, expressed

as z-scores. This adjusts for the relatively

higher caseloads in the US and UK and rela-

tively lower caseloads in Canada and the EU.

• If the vaccine’s widespread uptake was hav-

ing a big impact on total disease burden, we

would expect these metrics for both the US

and UK to be measurably outperforming

Canada and the EU, and that appears to be

the case as shown in the top chart.

• We aren’t yet seeing the same divergence in

deaths. While UK and US deaths are outper-

forming those of the EU to a dramatic de-

gree on a relative basis, Canadian deaths are

also falling rapidly despite much lower vac-

cination rates, suggesting vaccines aren’t

(yet?) the primary driver of declining deaths.

• None of this is an argument vaccines don’t

work. Based on trial results, COVID vaccines

have been among the most effective devel-

oped in history.

• What it may suggest, though, is that vac-

cines plus prior exposures are not yet a high

enough share of the population in the US and UK to explain the recent drop in cases and deaths.

• We would expect broader “effective immunity” dynamics to kick in when a larger share of the pop-

ulation has been either vaccinated or previously infected.

• In keeping with our message from page one, though, it’s still very early in the vaccine’s rollout so it

will take time to get a hold on more definitive data. For now at least, it appears as though in coun-

tries with more aggressive vaccinations programs, the curve is flattening faster.

New Daily Cases Per Capita (7d Average, Z-Score)

Daily Deaths Per Capita (7d Average, Z-Score)

-2

-1

0

1

2

3

4

US

United Kingdom

EU

Canada

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

US

United Kingdom

EU

Canada



Below we provide an update of some of the key charts we track with respect to vaccines.

• Vaccines administered hit their second-highest daily level of the pandemic Thursday, rising to 75

bps of the US population in total dose terms. Total single doses administered are now 19.8% of the

population, with two-doses regimens completed for 10.2% of the population. The US accounts for

over one-quarter of global doses.

• Allocated doses are rising at a pace of 3mm per day, meaning the backlog of available doses contin-

ues to rise faster than total doses administered. President Biden’s announcement Thursday night

that all US adults would be eligible by May 1st was good for headlines, but it was a very low bar to

set given the pace of vaccine administration.

US Vaccines Reported Administered/Day

Note: per mm

population, trend

is YTD.

7d Avg Doses Above 2mm/Day

US Vaccines Reported Administered/Day

Allocated Doses Still Surging Still Lots of Upside From Allocated Inventories

More Than 32mm Doses Allocated But Not Used

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Vaccination Doses/Day

Trend YTD

Trend Since 2/1

4

6

8

10

12

14

16

18

20

22

Allocated Doses WoW Change (mm)

0

10

20

30

40

50

60

70

80

90

% of Total Allocated Doses Injected

0

5

10

15

20

25

30

35

Allocated But Not Injected Doses (mm)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000U.S. totals Trend

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Vaccination Doses/Day, 7d Avg



Shifting focus to the actual trends in COVID case counts, the US and many other areas of the world

have been flattening, but it hasn’t been uniform improvement.

• As shown in the top left chart, Europe has seen a relatively sharp spike in cases in recent days,

while other areas of the world have seen the pace of counts stop declining.

• Again, the US has been a major bright spot, but in Brazil, case counts are at new highs while new

case counts in Chile are at their highest levels since last Spring.

• Within the EU, countries that have seen the sharpest increases include Italy, France, and Sweden.

The curves of case counts in the UK and Spain, on the other hand, have flattened to their lowest

levels since last Fall.

• South Africa saw a steep second wave, but like the rest of the region, its curve has really started to

flatten out in recent weeks.

• Case counts in Asia have been among the lowest in the world and remain that way now despite

some slight increases in the South Korea.

Global New Cases Per Day Per mm Population (7d Avg)

0

100

200

300

400

500

600

700

800

World

Americas Ex US

EU

East Asia

Africa

US

Rest of World

0

20

40

60

80

100

120

World

East Asia

Africa

0

50

100

150

200

250

300

350

Ethiopia

Ghana

Kenya

Nigeria

South Africa

0

100

200

300

400

500

600

700

800

Canada

Brazil

Chile

Mexico

US

0

100

200

300

400

500

600

700

800

900

1000

FranceGermanyItalySpainUnited KingdomSweden

0

20

40

60

80

100

120

140

160

180

200

China

Japan

South Korea

Singapore



One of the biggest news items of the week was the passage and signing of the $1.9 trillion COVID relief

bill. While the bill lacked even a hint of bipartisanship, one encouraging tangential aspect of the entire

process was that it now seems to be little chance for the Senate to end the filibuster. From an invest-

ment perspective, a precedent setting end to the filibuster would result in increased long-term uncer-

tainty as it would result in more major policy changes and the passage of more extreme policy

measures from whichever party is in power (in this case the Green New Deal or packing the Supreme

Court).

With its passage, the Tax Policy Center released estimates for the COVID relief bill’s impact on after-tax

income.

• The combination of checks and changes to

the child tax credit system will boost annual

cash income by 3.8% across all tax units, but

the distribution of that boost is obviously

skewed: the bottom 20% of the income dis-

tribution will see a 20% increase in annual

income (chart left).

• There are major implications for consumer

spending. Because consumers with the low-

est incomes tend to have a higher marginal

propensity to consume each additional dol-

lar of income, these payments will make

their way into the economy quickly.

So, where do lower income consumers tend to spend most of their income?

• In the chart at right, we show the percent-

age point difference between share of in-

come spent on a given category by the low-

est quintile of earners and the middle quin-

tile.

• Groceries and restaurants are the big stand-

outs. Clothes and Autos are also big.

• Besides where consumers will be spending

there money, some is also likely to be saved,

and find its way in the stock market too.

Tax Policy Center Est. Income Effects of HR 1319

20.1

9.3

5.5

3.62.0

0.4 0.1 0.00

5

10

15

20

25

Esti

mat

ed

$ C

han

ge In

Cal

en

dar

20

21

In

com

e

(%)

Distribution of Cash Income

Spending Share of Income Skew For Lowest-Income

21.82

7.35

4.06 3.812.71

1.75 1.00 0.87

0

5

10

15

20

25

Shar

e o

f Ex

pe

nd

iute

: Bo

tto

m Q

uin

tile

of

20

19

In

com

e L

ess

Mid

dle

Qu

inti

le



Below, we summarized what happened in the market this week.

• Major US indices turned in a very strong week. Small caps led the way higher rallying more than

7%, while large cap indices like the S&P 500 and Nasdaq 100 lagged with gains of over 2%.

• While growth stocks have been under pressure, they bounced in a big way this week. Worth

noting in the race between the two styles, though, is that small cap value (IJS) is now outperform-

ing small cap growth (IJT) over the last 12 months. In the large and mid cap spaces, growth is still

outperforming, but the gap is narrowing.

• Sector performance also varied widely this week with Energy lagging for a change, while Consumer

Discretionary, Utilities, and Materials all rallied over 4%.

• Performance among international equities was less uniform. China and Australia were both down

on the week, Brazil and Hong Kong both rose less than 1%, and Mexico led the way higher with a

gain of over 5%.

US Related Global

ETF Description ETF Description

SPY S&P 500 2.72 5.40 61.85 EWA Australia -0.04 4.97 70.17

DIA Dow 30 4.15 7.61 58.03 EWZ Brazil 0.91 -10.20 37.23

QQQ Nasdaq 100 2.20 0.55 79.17 EWC Canada 4.17 11.80 73.71

IJH S&P Midcap 400 5.37 15.00 88.94 ASHR China -1.71 -1.20 46.90

IJR S&P Smallcap 600 7.44 25.15 111.39 EWQ France 4.10 6.98 63.37

IWB Russell 1000 2.96 5.51 65.95 EWG Germany 3.46 4.47 67.86

IWM Russell 2000 7.29 19.14 111.59 EWH Hong Kong 0.83 8.69 38.24

IWV Russell 3000 3.23 6.41 68.40 PIN India 1.02 6.85 72.68

EWI Italy 4.60 7.37 72.12

IVW S&P 500 Growth 2.23 0.53 65.82 EWJ Japan 1.14 2.04 55.73

IJK Midcap 400 Growth 5.13 9.30 84.74 EWW Mexico 5.36 1.95 34.34

IJT Smallcap 600 Growth 6.99 17.34 101.80 EWP Spain 3.02 3.40 49.59

IVE S&P 500 Value 3.25 10.82 54.67 RSX Russia 4.86 10.89 78.44

IJJ Midcap 400 Value 5.56 20.72 91.67 EWU UK 1.89 8.81 42.03

IJS Smallcap 600 Value 7.76 32.75 119.87

DVY DJ Dividend 4.29 19.64 62.55 EFA EAFE 2.21 4.55 56.56

RSP S&P 500 Equalweight 3.30 11.02 72.97 EEM Emerging Mkts 0.30 4.49 62.77

IOO Global 100 1.50 4.50 60.36

FXB British Pound 0.59 1.80 10.10 BKF BRIC -0.24 3.86 55.53

FXE Euro 0.36 -2.28 5.96

FXY Yen -0.61 -5.39 -3.97 DBC Commodities 0.29 18.50 45.41

USO Oil -0.20 34.35 -15.23

XLY Cons Disc 6.34 3.73 75.05 UNG Nat. Gas -3.87 5.33 -31.76

XLP Cons Stap 2.24 -1.93 30.41 GLD Gold 1.48 -9.46 9.27

XLE Energy 1.17 41.35 94.34 SLV Silver 2.87 -2.20 64.36

XLF Financials 3.14 17.94 75.24

XLV Health Care 1.40 1.02 37.57 SHY 1-3 Yr Treasuries -0.01 -0.09 0.79

XLI Industrials 3.56 9.28 69.22 IEF 7-10 Yr Treasuries -0.47 -4.94 -2.67

XLB Materials 4.49 8.70 85.15 TLT 20+ Yr Treasuries -2.05 -13.53 -12.40

XLK Technology 1.91 1.07 76.59 AGG Aggregate Bond -0.43 -3.41 5.49

XLC Comm Services 1.80 10.68 77.75 BND Total Bond Market -0.53 -3.72 7.82

XLU Utilities 4.57 -0.46 18.28 TIP T.I.P.S. -0.18 -2.05 11.21

This Week YTD

One

Year This Week YTD

One

Year

Asset Class Performance This Week, YTD, and One Year - Total Return (%)



We’re closing out another week with just about every major US index at overbought or extreme over-

bought levels.

• Obviously, that makes the risk reward proposition less favorable, which is why the DJIA and a num-

ber of small and mid cap indices have ‘Poor’ timing scores.

• The one outlier among them all is the Nasdaq 100. It is still below its 50-DMA and is the lone index

with a ‘Good’ timing score.

• Within the S&P 500 sectors, it’s a more mixed picture. Materials Financials, and Industrials, all

have Poor timing scores, while Technology, Health Care, and Consumer Discretionary look more

favorable from the timing perspective.



One potentially problematic aspect of the market from a sentiment perspective lately is where the S&P

500 has been seeing the most strength and weakness.

• Whether we look back to the Presidential election or just go back to the start of the year, the bulk

of the S&P 500’s gains have been coming in the opening half hour of trading while the last hour has

seen significant weakness.

• Over both time periods, the S&P 500 has tended to build on its opening strength, but because of

weakness in the last hour, the average closing price is lower than the open.

• Below we break out the S&P 500’s intraday returns on hourly intervals.

• Not only is the last hour the weakest interval of the trading day by a significant margin, but it has

also been consistent to the downside. This year alone, the S&P 500 has traded lower in the last

hour of trading more than two-thirds of the time!

• As we’ve noted in the past, the Smart Money Indicator says that that emotional headline driven

trades (Dumb Money) occur at the open while the more thoughtful reasoned trades (Smart Mon-

ey) come at the end of the trading day. Based on this indicator, the dumb money has been loading

up and the smart money has been selling to them.

S&P 500 Intraday Composite (%)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

9:30 11:00 12:30 14:00 15:30

First Half Hour, Last Hour Since Election YTD

S&P 500 Average Hourly Change (%)

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

0.25

10 11 12 1 2 3 4

Ave

rage

Ch

an

ge (

%)

Hour Ending

Since Election YTD

S&P 500 Frequency of Positive Returns By Hour

0

10

20

30

40

50

60

70

10 11 12 1 2 3 4

Hour Ending

Since Election YTD



Given the extreme weakness of the S&P 500 in the last hour of trading, we wanted to see how it com-

pares to other periods in the past.

• Over the last 50 trading days,

the S&P 500 has only traded

higher in in the last hour of

trading 15 times (30%). The

chart below only goes back to

2010, but even if we were to go

all the way back to 1983, there

has never been a lower reading,

and there have only been five

other periods where the rolling

50-day average dropped below

33%.

• In the chart at right, we have

overlaid red dots at each point

that the 50-day average of the

percentage of positive last hours

dropped below 33.33%.

• Looking at the occurrences,

there have been some ominous

comparisons (2011, 2015, and

2018), and some that have been

more benign (2013 and 2016).

• The chart below shows the S&P 500’s performance following the first day in each period where the

50-day moving average of positive last hours dropped below a third.

• While there were some significant short-term pullbacks in three of the five periods, bulls can take

solace in the fact that one year later, the S&P 500 was higher every time, and in two of the periods

(2013 and 2016), it never even looked back.

Percentage of Days S&P 500 Trades Up in Last Hour of Trading Day50-Day Moving Average (%)

8/10/11, 32 10/9/13, 328/5/15, 30

12/1/16, 3210/25/18, 30 3/4/21, 30

25

30

35

40

45

50

55

60

65

70

75

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

S&P 500: 2010 - 2021

1000

2000

4000

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

One Month Three Months Six Months One Year

7/29/11 -10.68 -4.07 3.90 8.79 -14.94

10/9/13 6.90 10.97 13.03 16.41 0.00

6/22/15 -9.50 -1.08 -11.44 2.83 -13.84

11/14/16 3.45 10.71 12.28 22.09 0.00

10/22/18 -4.47 -3.31 6.18 9.68 -14.69

3/3/2021

Average -2.86 2.64 4.79 11.96 -8.69

Median -4.47 -1.08 6.18 9.68 -13.84

S&P 500 Performance (%) Max Drawdown Over

Next 12 Months

S&P 500 After Periods of Weak Last Hours

First Date

Below 33.3%



Shifting focus, economic data this week was relatively sparse, but one of the first key reports of the

week was Small Business Optimism from the NFIB.

• After crashing following the election, small

business sentiment remains pretty beaten

down, though the NFIB's index did finally

improve rising from 95 to 95.8.

• While small business sentiment is far from

recovered, uncertainty has seen a more

significant improvement. After spiking to a

near-record high of 98 around the election

last fall, the index for Economic Policy Un-

certainty continued to drop reaching 75 in

February.

• That 7 point month-over-month decline

stands in the bottom 5% of all monthly

changes which brings the index to the low-

est level since last April.

Sales metrics generally improved although firms reported less optimism for the future.

• While sales expectations fell deeper into

negative territory, small businesses report-

ed higher nominal sales as that index rose

from -7 to 2.

• That was in the top 5% of all monthly

moves and the first positive reading since

November.

NFIB Small Business Optimism Index

10%

20%

30%

40%

50%

60%

70%

80%

90%

78

82

86

90

94

98

102

106

110

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Optimism , 95.8

NFIB Economic Policy Uncertainty Index

10%

20%

30%

40%

50%

60%

70%

80%

90%

45

55

65

75

85

95

105

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Economic Policy Uncertainty Index, 75

NFIB Small Business Optimism Index Components: Sales

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-50

-40

-30

-20

-10

0

10

20

30

40

50

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Sales Expectations, -8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-40

-30

-20

-10

0

10

20

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Actual Sales Changes, 2



As headline regular state initial and continuing jobless claims came in at or around pandemic lows, the

NFIB report also gave some optimistic insights into the labor market.

• For starters, the index for Hiring Plans rose slightly from 17 in January to 18 in February. Although

that is off higher levels from earlier in the pandemic, it is well within the range of the past several

years. Compensation Plans were also higher with the index gaining 2 points to 19.

• Even though firms appear to want to increase employment, they have yet to follow through with

actual hiring. The index for Actual Employment Changes remains negative falling further to -3 in

February. Meanwhile, the Compensation index went unchanged.

• The lack of actual increases to employment does not appear to be a demand problem on the part

of small businesses but instead something of a labor supply problem.

• A record number reported job openings as hard to fill while 33% report either cost or quality of

labor as the single most important problem for the business; up 5 percentage points from the prior

month.

• This week’s JOLTS report for January echoed this sentiment as job openings came in at the highest

level since last February.

NFIB Small Business Optimism Index Components: Employment

10%

20%

30%

40%

50%

60%

70%

80%

90%

-12

-8

-4

0

4

8

12

16

20

24

28

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Hiring Plans , 18

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-25

-20

-15

-10

-5

0

5

10

15

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Actual Employment Changes, -3

10%

20%

30%

40%

50%

60%

70%

80%

90%

5

10

15

20

25

30

35

40

45

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Job Openings Hard to Fill, 40

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-5

0

5

10

15

20

25

30

35

40

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Compensation, 25

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

5

10

15

20

25

30

35

40

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Cost or Quality of Labor SingleMost Important Problem, 33

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-5

0

5

10

15

20

25

30

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Compensation Plans Index, 19

https://www.bespokepremium.com/interactive/posts/think-big-blog/jobless-claims-weaker-under-the-surface



We already noted how Small Business sentiment has been slow to rebound despite the general pickup

in economic activity, but consumer sentiment has also been stuck near its post-Covid lows in both the

Conference Board’s monthly report and the University of Michigan report which was updated on Fri-

day.

• In the Michigan report, the flash reading for March came in significantly higher than expected,

climbing to 83.0 versus 76.8 in February and expectations for a reading of just 78.5.

• With this March increase, sentiment is now at the highest level since last March, and looks to final-

ly be trending higher.

• Within the report, sentiment towards inflation was also a positive.

• Inflation expectations for the next year came in at 3.1% which was actually down from February’s

six year high of 3.1%.

• Longer-term inflation expectations also appear to be somewhat grounded—or at least aren’t

breaking out. At 2.7%, this reading hasn’t made a new high since last May.

• If these indices can stay rangebound, it will help to soothe concerns of higher rates in the bond

market.

Michigan Sentiment: 1 Year Inflation Expectations

83.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Michigan Sentiment: 1 Year Inflation Expectations

3.1

2.0

2.5

3.0

3.5

4.0

4.5

5.0

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Michigan Sentiment: 5-10 Year Inflation Expectations

2.7

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21



With growth stocks getting pummeled lately on the prospect of higher rates, Wednesday’s CPI was eas-

ily the most important report to watch heading into the week, and results provided a market friendly

backdrop for the equity market as the headline readings were inline with forecasts, while the core

readings (ex food and energy) showed slower inflation than expected.

• The report illustrated perfectly that, for now, core price pressures are not a significant concern.

• Core goods prices fell 2.4% annualized, driven mostly by a fourth consecutive month of used auto

prices declining at least 10% annualized, the worst four-month stretch since 2008; that follows a

surge in used car prices last year.

• Apparel prices and health care goods prices are also areas of material weakness, with health care

goods prices down the most on record YoY.

• Tuition, school fees, and child care is also under considerable pressure, while rental prices have

plunged since COVID hit.

• Core inflation overall is up just 0.7% annualized over the last three months, and while it will pick

up, the trend is not strong at this time.

Key CPI Categories: YoY % Change

-1

0

1

2

3

4

5

6

7

8

9Rent of primary residence

Owners' equivalent rent ofprimary residence

-4

-2

0

2

4

6

8

10

12

14

16

Medical care services

Medical care goods

-20

-10

0

10

20

30

40

New vehicles

Used cars and trucks

-5

0

5

10

15

20

25

Food at home

Food away from home

-4

-2

0

2

4

6

8

10

12

14

16 Educational books andsupplies

Tuition, other school fees,and childcare

-4

-2

0

2

4

6

8

10

12

14

16

18

20

Core goods

Services ex energy



To reinforce the point on weak inflation, below we show the change in median CPI over the past

month, 3 months, 6 months, and year.

• Stronger services prices in February helped boost the monthly growth of median CPI to 2.8% annu-

alized, but the trend is still not dramatic in any way, shape or form.

• Median CPI measures the growth of the median CPI category, providing a more central trajectory

for broad prices than core CPI.

• Deflation isn’t a problem, but the median CPI data confirms that there’s a lot of “heating up” to do

before price pressures become something for the FOMC to be concerned about.

Median CPI Turns In A Respectable Month

0.5

1.0

1.5

2.0

2.5

3.0

3.5

3m Ann.

6m Ann.

YoY

Median CPI Change, Annualized % Change

1.74

1.84

2.07

2.9 3.0 3.2

2.6

4.0

2.6 2.63.2

2.73.0

2.0

2.6 2.8 2.6

1.8

3.1

1.7

2.82.4

1.2

2.8

1.0

1.7

1.0

2.8

0.0

1.0

2.0

3.0

4.0

5.0Median CPI MoM, Annualized % Change



With all the focus on rates and inflation lately, we wanted to provide a quick summary of how stock

market returns have historically been impacted by inflation.

• Through this week’s print for February, CPI was up 1.7% year-over-year, which is still low on a his-

torical basis. Don't let that low reading fool you, though.

• January 2020 was one month before the pre-

COVID peak, at which point CPI collapsed by

over a full percentage point in just three

months. Going back to 1948, there have only

been four other periods where headline CPI

fell by one percentage point or more in a

three-month span.

• Since May 2020, CPI has been rising at an average clip of 0.3% per month and is already up 2.82%,

so by the time this May rolls around, Y/Y CPI will be north of 3% for at least a short period of time

before settling back into a lower range.

• As shown by the red line in the chart below, if CPI continues to rise at the average pace that it has

for the last six months, the Y/Y rate in May will be at the highest level since just after the Financial

Crisis.

CPI 3-Month Rate of Change: 1948 - 2021

12/48

12/08

01/1506/86

-4

-3

-2

-1

0

1

2

3

4

5

6

'48 '58 '68 '78 '88 '98 '08 '18

CPI (Y/Y): 1950 - 2021

-3

0

3

6

9

12

15

'50 '60 '70 '80 '90 '00 '10 '20

-1.00

0.00

1.00

2.00

3.00

4.00

'10 '14 '18

Estimated

based on last six months

pace



What does a higher CPI mean for equity prices? The table and chart below break down the S&P 500's

median forward performance 3, 6, and 12 months following various readings in headline Y/Y CPI.

• The best equity market returns have historically followed periods when Y/Y CPI dropped below ze-

ro. In those brief and relatively rare instances when there was deflation in headline CPI, the S&P

500 experienced double-digit gains over the following six (12.2%) and twelve (21.6%) months with

positive returns 90% of the time or more.

• The current pace of CPI between 1% and 2% has also historically been followed by above-average

returns. As inflation ticks higher above 2%, though, median returns tend to weaken. It's not a per-

fect relationship, but as inflation rates increase, forward returns for the equity market tend to di-

minish.

Y/Y CPI Range Occurrences Median Chg % Positive Median Chg % Positive Median Chg % Positive

< 0% 40 5.99 87.5 12.23 92.5 21.58 90.0

0% - 1% 64 1.99 60.9 4.11 64.1 6.52 65.1

1% - 2% 196 3.40 77.0 7.03 77.2 12.92 80.9

2% - 3% 178 2.49 65.7 4.20 74.2 9.33 79.2

3% - 4% 148 2.51 62.2 4.37 70.9 9.03 70.3

4% - 5% 75 1.20 57.3 4.35 61.3 9.93 68.0

5% - 7% 87 0.92 57.5 1.23 51.7 5.09 62.1

7%+ 90 1.47 55.6 3.93 60.0 9.80 71.1

All Periods 878 2.5 65.7 4.8 69.6 10.2 74.0

= Expected range in May

3 Months 6 Months 1 Year

S&P 500 Performance Based on Y/Y CPI: 1948 - 2021

S&P 500 Median Performance Based on Y/Y CPI: 1948 - 2021

0

5

10

15

20

25

< 0% 0% - 1% 1% - 2% 2% - 3% 3% - 4% 4% - 5% 5% - 7% 7%+

S&P

50

0 P

erfo

rma

nce

(%

)

3 Months 6 Months 1 Year



For a more detailed comparison, we also looked for prior periods where headline y/y CPI first topped

3% after not being above that level at any point in at least the last three years. Since 1950, there were

only four other periods fitting the criteria. The charts below compare the S&P 500 to y/y CPI in the

year that followed each of those other four months (January 1957, August 1966, February 2000, and

April 2011).

• The S&P 500's performance in each of the four periods varied widely.

• From the end of January 1957 through January 1958, the S&P 500 originally rallied and rose by

nearly 10% before erasing all of its gains and more after inflation remained stuck above 3%. By

January 1958, the US economy was in a recession and the S&P 500 was down 6.8%.

• The period from August 1966 through August 1967 was much better for equities as the uptick in

inflation proved temporary, and the S&P 500 rallied 21.5%.

• In February 2000, headline inflation moved above 3% for the first time since February 1997 and

stayed there. While the S&P 500 treaded water for six months, with CPI still above 3%, equities

sold off and fell by over 9.3% through the end of February 2001 at which point the economy

peaked and went into a recession.

• The last time CPI moved above 3% after staying below there for at least three years was in April

2011. During that period, the S&P 500 traded lower as CPI moved up above 3.8%, but once CPI

peaked in September, the S&P 500 got back on track and rallied.

• In looking over the four different periods, when inflation proved to be somewhat temporary, the

S&P 500 was able to shake off any weakness and rally. However, in the two periods where infla-

tion remained stubbornly above 3%, equity prices faced added pressure.

S&P 500: January 1957 - January 1958 S&P 500: August 1966 - August 1967

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

-15

-10

-5

0

5

10

15

1/57 3/57 5/57 7/57 9/57 11/57 1/58

CPI (Right Axis) S&P 500 Performance (Left Axis)

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

-10

-5

0

5

10

15

20

25

30

8/66 10/66 12/66 2/67 4/67 6/67 8/67

CPI (Right Axis) S&P 500 Performance (Left Axis)S&P 500: February 2000 - February 2001 S&P 500: April 2011 - April 2012

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

-15

-10

-5

0

5

10

15

2/00 4/00 6/00 8/00 10/00 12/00 2/01


2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

-25

-20

-15

-10

-5

0

5

10

4/11 6/11 8/11 10/11 12/11 2/12 4/12




This week saw further selling of US Treasuries as investors pushed 10 and 30 year bond yields to new

highs for the post-COVID cycle.

• The move has been absolutely unre-

lenting, though, as we’ve repeatedly em-

phasized it has been focused between the

2 year and 10 year maturities.

• Very long-term yields have moved about

the same as 10s, indicating that runaway

inflation is not the concern.

• Rather, the market is pricing a much fast-

er start for interest rate hikes, with three

priced by the end of 2023.

• After that, rates have soared as investors

price a much stronger economy and

therefore much higher terminal rate

thanks to amazing progress with vaccines,

huge fiscal stimulus, and a Fed committed

to returning the economy to full poten-

tial.

• Oil prices have also supported breakeven

inflation, which is where all of the move

in 10 year rates has come since the end of

last June.

• Markets currently price almost four hikes

by the end of Q1 2024, contrasted with

FOMC forecasts for no hikes through the

end of 2023 as-of December.

• How the FOMC changes that 2023 dot (if

at all) will be of utmost importance at the

March meeting; if they make no changes

to the dot, bond markets will be ludi-

crously off-sides, with a direct conflict

between explicit Fed forecasts for ZIRP

and market pricing.

2y10y Steepening Still Driving Treasury Selling (bps Change)

Reals Have Stabilized, Breakevens Take Over (bps Change)

Markets Are Rapidly Pricing In A Tightening Cycle

-20

-10

0

10

20

30

40

50

60

3m2y 2y5y

5y10y 10y30y

-60

-40

-20

0

20

40

60

80

100

10 Year

10y Breakeven

10y TIPS

-6

-4

-2

0

2

4

6

Fed Hikes / (Cuts)Priced OverSubsequent 3 Years



Treasury market flows have also been fascinating lately.

• At the start of the week, investor David Tep-

per got attention for his comments arguing

Japanese investors (the largest overseas

holders of UST) might start stepping in to buy

soon.

• Japanese Ministry of Finance data showed a

net purchase of medium/long-term bonds

from overseas by Japanese investors in the

week ending last Friday when updated on

Wednesday, but price action this week saw

very large selloffs during APAC market hours

versus much less dramatic moves in the US

trading day suggesting resumed sales.

• The Ministry of Finance data isn’t a perfect

proxy for Japanese Treasury demand, but it’s

a reasonable proxy.

• Futures speculators saw the biggest net short

flow (in ten year note equivalents) ever in the

week ended 3/2, selling more than 440k con-

tracts on net basis.

• The most recent weekly data from the CFTC

(ending 3/9) showed a small net increase in

bond positioning from speculators in the

week ended Tuesday.

• Meanwhile, banks sold on net $47bn of UST

from January 27th through March 3rd per

data updated Friday by the Federal Reserve.

• NY Fed data updated this week reported that

dealer inventories of Treasuries dropped by

$35.6bn, the most since July of 2017 and the

second-most since at least 2015.

• In short, all major categories of investor from

overseas to fast money futures speculators to

US banks to dealers have sold Treasuries in

size over the last month.

• While there’s no iron law that this sort of

mass selling of an asset can’t be a behavioral inflection point, it’s hard to not feel optimistic about

bonds at this sort of behavioral extreme.

Japanese Investors Starting To Step In To UST Tumble

3/5/2021, 98.9

-2000

-1500

-1000

-500

0

500

1000

1500

2000

Japan Weekly Net Investment In ForeignMedium/Long-Term Bonds (bn JPY)

Futures Speculators Added Net Treasury Exposure This Week

-2500

-2000

-1500

-1000

-500

0

500

Speculator Net Position InUST ('000 TY Equivalents)

Banks Have Been Modest Net Sellers of UST

-50

-40

-30

-20

-10

0

10

20

30

40

50 Bank Holdings of Non-MBSTreasury/Agency Debt WoW ($ bn)Dealer Holdings of UST WoW ($bn)



After a relentless 14% decline from its high just after the COVID outbreak, the Bloomberg US Dollar In-

dex has shown some hints of life in the last few weeks.

• This week, the Bloomberg US Dollar Index traded at its highest level since the first half of Novem-

ber as its 50-DMA has also started to curve higher for the first time since late May.

• If current levels of positioning are any indication, the dollar’s rally may have more gas left in the

tank.

• Traders recorded as speculators in

the CFTC’s Commitment of Trad-

ers report entered this run ex-

tremely short the US dollar.

• Speculators were recently net

short 26.9% of the dollar index’s

futures contract which is the most

bearish positioning in years.

• Aggregated across futures con-

tracts including the dollar index

and all developed market currency

futures, speculators were also net

short 12.2% of open interest,

which ranks in the sixth percentile

of the past decade.

• In short, there’s significant upside

to the dollar from these levels

based on a short squeeze driving

buying flows across a number of

currencies.

Speculator Positioning In FX Futures: % of Open Interest

-60

-40

-20

0

20

40

60

80

USD Index

-20

-15

-10

-5

0

5

10

15

20

25

USD vs DM

Bloomberg US Dollar Index: Last 12 Months

1100

1125

1150

1175

1200

1225

1250

1275

1300

3/20 5/20 7/20 9/20 11/20 1/21 3/21

50-DMA200-DMA



Sentiment towards the dollar has been very bearish, but investors generally remain positive on the

market and are more engaged than they have been in years.

• The chart at right comes from our monthly Consumer

Pulse report and shows the running % of consumers

who say they follow the market on a regular basis.

• While not quite a record, at 73.5% the percentage re-

mains at the upper end of the already elevated range it

has been in since late 2019.

• For some perspective, less than half of respondents said

they followed the stock market on a regular basis back in late 2016.

In terms of actual sentiment, the widely followed AAII and Investors Intelligence surveys have moved in

opposite directions.

• Regarding individual investor sentiment in the AAII survey, respondents took a much more bullish

tone in the wake of the recent rally.

• Bullish sentiment popped 9.1 percentage points to the highest level since 11/12. That was also the

largest one week increase since that same week.

• That uptick in bullish sentiment borrowed mostly from neutral sentiment which fell 7.3 percentage

points while bearish sentiment was also

lower falling 1.8 percentage points to

23.5% resulting in the bull-bear spread to

make a sharp move higher to 25.9 per-

centage points– its highest level since late

last year.

• The spread is now at the highest level

since the first week of December. Prior to

that, the only recent reading that was as

high was November 12th which was more

than a two year high.

• Conversely, the Investors Intelligence sur-

vey of equity newsletter writers (bottom

chart) saw sentiment shift more pessimis-

tic. Bullish sentiment fell to 51%; the low-

est level since the end of last May.

73.5

34

39

44

49

54

59

64

69

74

79

Follow Stock Market On A Regular Basis? (%)

AAII Bull-Bear Spread: 2009 - 2021

-60

-40

-20

0

20

40

60

500

1000

1500

2000

2500

3000

3500

4000

4500

1/09 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21

S&P 500 (Left Axis)

Bull Bear Spread

Investors Intelligence - Bullish Sentiment

20

25

30

35

40

45

50

55

60

65

70

'11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

https://www.bespokepremium.com/interactive/posts/think-big-blog/two-sentiment-surveys-go-in-opposite-directions



While sentiment is flashing somewhat of contrarian signal, market breadth remains positive.

• The S&P 500 barely made a new high on a closing basis Thursday, but the cumulative A/D line con-

tinues to pile on the new highs.

• While the S&P 500 closed out the week slightly below its prior high from February, the cumulative

A/D line was higher by nearly 800 (8,149 vs 7,376).

For the Nasdaq and Russell 2000, breadth is a bit more mixed.

• The Nasdaq’s cumulative A/D line is not quite at a new high, but neither is the index, and as shown

in the bottom left chart, its cumulative A/D line is closer to a high than the index.

• Breadth in the Russell 2000 is just as strong as in the S&P 500 as its price and cumulative A/D line

broke out to new one-year highs this week.

Nasdaq vs Cumulative A/D Line: Last 12 Months Russell 2000 vs Cumulative A/D Line: Last 12 Months

-15000

-10000

-5000

0

5000

10000

15000

20000

900

1100

1300

1500

1700

1900

2100

2300

2500

3/20 5/20 7/20 9/20 11/20 1/21 3/21

Russell 2000 (Left Axis)

Cumulative A/D Line (Right Axis)

-18000

-8000

2000

12000

22000

32000

6500

7500

8500

9500

10500

11500

12500

13500

14500

3/20 5/20 7/20 9/20 11/20 1/21 3/21

Nasdaq (Left Axis)

Cumulative A/D Line (Right Axis)

S&P 500 vs Cumulative A/D Line: Last 12 Months

-2000

0

2000

4000

6000

8000

2200

2500

2800

3100

3400

3700

4000

3/9 6/9 9/9 12/9 3/9

S&P 500 (Left Axis) Cumulative A/D Line (Right Axis)



Over the last several years we’ve grown accustomed to the Philadelphia Semiconductor Index (SOX)

leading the S&P 500 to new highs. This week, though, the opposite has been the case.

• Despite the S&P 500 closing at a record high again this week, the SOX remains more than 5% below

its recent high.

• As a result, the relative strength of the semis versus the S&P 500 remains well below its recent high

from February.

• We’ll be the first to call outperformance of the semis a positive signal for the broader market, so

we have to at least ask the question over whether or not the underperformance is a bad sign.

The table below shows each of the seven prior periods in the last ten years where the S&P 500 closed

at a 52-week high but the SOX was still more than 5% from its respective 52-week high.

• The last time this occurred was in June 2019, and following that period the SOX outperformed the

S&P 500 by a wide margin, but outside of that last period, neither index performed particularly

great on a median basis.

Relative Strength: Semis vs S&P 500 (Last 12 Months)

2200

2500

2800

3100

3400

3700

4000

90

110

130

150

170

190

2/20 4/20 6/20 8/20 10/20 12/20 2/21

Semis vs S&P 500

S&P 500 (Right Axis)

Date One Month Three Months Six Months One Year One Month Three Months Six Months One Year

4/28/11 -5.43 -3.23 -12.74 -11.44 -7.07 -2.16 -4.40 -5.54 3.15

2/24/12 -8.82 2.81 -13.38 -5.86 0.28 2.30 -3.30 3.32 10.97

9/6/12 -8.45 -5.25 -6.40 7.03 17.44 2.01 -1.27 7.63 15.57

1/4/13 -10.00 4.15 5.90 18.13 32.44 1.99 6.38 10.16 24.88

4/24/15 -5.55 3.82 -7.39 -1.44 -3.56 0.40 -1.80 -2.01 -1.23

11/30/17 -5.15 -1.53 7.17 9.22 -2.59 0.98 1.65 2.89 4.25

6/20/19 -10.57 7.24 9.99 30.46 38.41 0.76 1.28 9.04 4.86

3/11/21 -7.47

Average 1.14 -2.41 6.59 10.76 0.90 -0.21 3.64 8.92

Median 2.81 -6.40 7.03 0.28 0.98 -1.27 3.32 4.86

SOX Outperf S&P 500 (%) 57 29 57 43

SOX Performance (%) S&P 500 Performance (%)SOX Spread vs

52-Week High

S&P 500 Closes at 52-Week High But SOX More Than 5% Below its 52-Week High



While semis have been underperforming the S&P 500 by a pretty considerable margin, they have also

been outperforming the broader market in terms of volatility.

• Wednesday’s 1.8% decline for the SOX was the 10th straight daily move of +/-1%, but it ended a

streak of 7 straight days that it moved up or down 3%.

• Even for a notoriously volatile group like semis, you don’t often see a seven-day streak of 3%+ daily

moves. Since the index’s inception in 1994, there have only been two other streaks that were

longer and just one other that was more than five trading days.

• The longest streak of 3%+ daily moves was 12 trading days at the height of the pandemic, while the

other two that stretched longer than five trading days were during the later stages of the dot-com

bust.

• The end of last year’s streak pretty much coincided with the exact low in the SOX last March, but

the timing of the prior two streaks was more mixed. In September 2001, the SOX saw a brief but

strong rally, but in 2002, it took another three months for semis to bottom.

Philadelphia Semiconductor Index Streaks of 3% Daily Moves: 1994 - 2021

9/24/2001, 6

7/11/2002, 8

3/24/2020, 12

7

0

2

4

6

8

10

12

14

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Nu

mb

er o

f 3

% D

ail

y M

ove

s

Philadelphia Semiconductor Index: 1994 - 2021

100

200

400

800

1600

3200

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20



Another measure of breadth we continually track is the percentage of stocks hitting new 52-week

highs, and earlier this week on Monday, we saw a large uptick of stocks hitting new highs even as the

S&P 500 traded lower!

• For the S&P 500, a net 24.55% of stocks

reached new 52-week highs on Monday

which was in the top 1% of all readings

going back to at least 1990 and the high-

est level since 11/9.

• Prior to that you would need to go back

to January of last year to find another

reading as strong.

• Looking across sectors, there were nota-

bly strong readings. Communication Ser-

vices, Consumer Discretionary, Energy,

Financials, Industrials, and Materials all

saw readings in the 98th or 99th percen-

tile of all periods.

• For many of these sectors there have

been some higher readings at various

points of the past year, but for others

like Financials and Communication Ser-

vices, higher readings have been harder

to come by.

• In the case of Communication Services,

it was the highest since August 2018.

• One notable outcast in terms of new

highs has been Tech. While still seeing a

positive net number of new highs, the

sector’s reading has been much more

muted both relative to itself recently

and other sectors.

• While Tech has sat out in terms of new

highs, the more broadly strong readings

indicate solid breadth for the overall

market. Were this not the case, we'd

see the major indices performing much

worse given how large Tech's weighting

is in the S&P 500.

Net Percent of Stocks At 52-Week Highs - Past Year

-80

-60

-40

-20

0

20

40

3/20 6/20 9/20 12/20 3/21

S&P 500

-80

-60

-40

-20

0

20

40

60

3/20 6/20 9/20 12/20 3/21

Communication Services

-60

-40

-20

0

20

40

60

3/20 6/20 9/20 12/20 3/21

Technology

-100

-80

-60

-40

-20

0

20

40

60

80

3/20 6/20 9/20 12/20 3/21

Financials



Given the first percentile reading in new highs for the S&P 500, in Tuesday’s Chart of the Day we high-

lighted what historically high and low readings have meant for forward returns. We also noted how

one interesting aspect of Monday’s readings in net new highs was the fact that it occurred on a day

that the S&P 500 fell by over half of one percent.

• In the table at left, we show

every time since 1990 that more

than 20% of S&P 500 stocks hit

new highs on a day that the index

was down (with no prior occur-

rences in the prior 90 days).

• With a 0.54% decline Mon-

day, it was actually the most se-

vere decline for the S&P 500 of

these dates shown while the net

new highs reading was the fifth-

highest of the 14 occurrences.

• The reason for the discrepan-

cy stems from the weakness in

mega-cap Tech stocks. Even

though a lot of stocks in the S&P

were hitting new highs, the very

largest stocks fell sharply, bring-

ing down the cap-weighted in-

dex.

• Historically, these types of

occurrences have been followed

by some short-term weakness

followed by strong performance

longer-term.

• The following week has aver-

aged a decline with positive re-

turns less than half the time fol-

lowed by positive, albeit weaker

than normal, returns over the

next month.

• Three, six, and twelve months later have held a much more positive bias. In fact, one year later

there has yet to be an instance in which the S&P 500 traded lower.

• You'll also notice that none of these occurrences came near the end of major bull markets over the

last few decades.

Date Week Month 3 Month 6 Months Year

9/15/1995 27.80 -0.04 -0.28 0.20 6.20 9.86 16.66

2/13/1996 20.64 -0.14 -1.88 -3.32 -2.28 0.80 19.54

11/26/1996 25.40 -0.14 -1.44 -0.02 7.19 12.07 25.78

7/7/1997 22.05 -0.51 0.68 4.18 3.85 6.89 26.58

3/25/1998 20.60 -0.34 0.56 1.60 -0.12 -6.56 17.07

6/6/2003 23.20 -0.24 0.09 1.69 3.47 7.79 15.46

10/15/2003 20.60 -0.26 -1.57 1.13 7.69 7.84 5.87

4/21/2010 20.20 -0.10 -1.21 -7.54 -11.70 -1.76 8.85

5/2/2011 20.60 -0.18 -1.10 -1.18 -4.14 -5.63 3.28

5/9/2013 21.20 -0.37 1.46 1.03 4.95 8.38 15.48

9/19/2013 26.40 -0.18 -1.37 0.63 3.08 8.69 16.72

11/28/2014 25.70 -0.25 0.38 1.11 2.09 2.14 0.62

12/4/2017 21.18 -0.11 0.78 2.79 1.96 4.14 2.30

3/8/2021 24.55 -0.54 ? ? ? ? ?

Average -0.38 0.18 1.71 4.20 13.40

Median -0.28 1.03 3.08 6.89 15.48

% Positive 46.2 69.2 69.2 76.9 100.0

All Periods

Average 0.18 0.73 2.16 4.47 9.17

Median 0.32 1.17 2.85 5.22 10.85

* Times that the S&P 500's net percentage of new 52-week highs is above 20% when the

index was lower on the day without another occurrence in prior 3 months.

S&P 500 Net

New Highs

S&P 500

% Chg

S&P 500 Performance (%)

S&P 500 Strong Net New High Readings on Down Days*

Strong Net New High Readings on Down Days

256

512

1024

2048

4096

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

S&P

500

(Lo

g Sc

ale

)

https://www.bespokepremium.com/interactive/posts/chart-of-the-day/chart-of-the-day-new-highs-expanding



With the rally in growth stocks running out of steam lately, investors have rotated into value stocks. As

a result of that shift, the Russell 1000 Growth Index has been in the unusual position of lagging its value

counterpart by a wide margin.

The chart below shows the rolling six-month performance spread between the Russell 1000 Growth

and Value Indices. When the line is above zero, it indicates that growth is outperforming value while a

negative reading indicates that value is outperforming growth.

• Earlier this month, the performance gap between the two indices widened out to over 16 percent-

age points in favor of value and still currently stands at 13 percentage points.

• Gaps this wide have been uncommon throughout the history of the indices; there have only been

five other periods since 1991 that growth underperformed value by ten percentage points or more

in a six-month span.

Russell 1000 Growth and Value: Last Six Months

-10

-5

0

5

10

15

20

25

8/31 9/30 10/31 11/30 12/31 1/31 2/28

Per

cen

t C

ha

nge

(%

)

R1000 Growth R1000 Value

Six Month Performance Spread: Russell 1000 Growth vs Value

-40

-30

-20

-10

0

10

20

30

40

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21



The table below lists the first day in each prior period where the Russell 1000 Growth Index underper-

formed the Russell 1000 Value Index by ten or more percentage points in a six-month span and shows

the subsequent performance of both indices over the following one, three, six, and twelve months.

• Of the five periods shown, growth experienced positive forward returns in three of the five peri-

ods, but in the two periods where it continued to decline going forward, the losses were severe.

• Value, meanwhile, also saw generally positive returns in three of the five periods, and although the

losses weren't as severe, the two periods where it was down one year later were the same two

where growth also declined (2000 and 2002).

• On a relative basis, more often than not, growth showed a bounce over the following one and

three months, but six and twelve months later, the scales started to tip in favor of Value.

• In four of the five periods shown, the Russell 1000 Growth Index underperformed the Russell 1000

Value Index over the next year, including one period where it underperformed by more than 40

percentage points.

• Based on prior experiences where growth underperformed value over the trailing six months, it

wasn't uncommon for growth to bounce back on a relative basis in the short term, but one year

later, it was usually value that ended up on top even if the margin of outperformance wasn't typi-

cally very large.

Date 1 Month 3 Months 6 Months 1 Year 1 Month 3 Months 6 Months 1 Year

6/12/92 1.9 5.1 10.0 6.4 0.6 -0.1 3.7 14.1

2/22/93 3.5 3.4 3.4 7.8 3.1 2.2 8.1 9.7

8/21/00 -3.4 -19.1 -32.3 -42.4 -2.6 -0.5 1.3 -0.8

4/24/02 -2.4 -23.6 -20.1 -17.2 0.4 -22.3 -19.7 -16.8

8/28/09 3.5 7.8 9.6 5.4 3.5 4.0 6.1 2.8

Median 1.9 3.4 3.4 5.4 0.6 -0.1 3.7 2.8

Date 1 Month 3 Months 6 Months 1 Year *

6/12/92 1.3 5.2 6.3 -7.7

2/22/93 0.4 1.2 -4.6 -1.9

8/21/00 -0.8 -18.6 -33.7 -41.6

4/24/02 -2.7 -1.3 -0.4 -0.5

8/28/09 0.0 3.8 3.5 2.6

Median 0.0 1.2 -0.4 -1.9

Performance After Growth Lags Value Over Prior Six Months

Russell 1000 Growth (%) Russell 1000 Value (%)

Spread: Growth vs Value (ppts)

First day in each period

that R1000 growth lagged

value by 10+ percentage

points in prior 6 months.



There isn’t a day that goes by where the current market environment is not compared to some period

of time in the late 1990s to early 2000s, so for today’s comparison, we wanted to highlight the relative

strength of the Russell 1000 Growth versus the Russell 1000 Value indices.

• The 1990s is often remembered as the bubble of all bubbles in our lifetimes, but in mid 2020, the

Russell 1000’s relative strength reading versus the Russell 1000 Value Index actually surpassed the

peak reading from the 1990s rally.

• And while it may look in the chart like the most recent run higher for growth took place over a

longer period of time, if we measure the relative strength of the Russell 1000 Growth Index versus

Value from the dates in each period where it broke above zero the runs look more similar.

• As shown below, the period since 2015 saw Growth’s relative strength peak at a higher level than it

did in early 2000. However, on the comparable date in the current period compared to the period

from 1995 through 2000, the relative strength of the Russell 1000 Growth to Value was identical to

its level now.

Russell 1000 Growth vs Russell 1000 Value Relative Strength: 1991 - 2021

-25

0

25

50

75

100

125

'95 '97 '99 '01 '03 '05

1995 - 2021 2015 - 2021

Russell 1000 Growth vs Russell 1000 Value Relative Strength: 1991 - 2021

-40

-20

0

20

40

60

80

100

120

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21

1995 2015



Back on Monday, the massive underperformance of the tech and growth focused Nasdaq 100 versus

the DJIA created a rare combination where the Nasdaq 100 was more than two standard deviations

below its 50-DMA while the DJIA was more than 1.5 standard deviations above its 50-DMA.

• That combination of extreme readings was only the sixth time since the Nasdaq 100’s inception

that it was more than 1.5 standard deviations oversold while at the same time the DJIA was 1.5

standard deviations overbought.

• Those five periods - multiple times in the mid-1990s, towards the end of the mid-2000s bull mar-

ket, and as the post-Trump surge to new highs kicked off in 2016—tended to be pretty good entry

points for both indices.

• As shown in the second chart below, the NASDAQ 100 generally outperforms from these levels,

too, though both indices average substantial gains 6 months and a year out.

• Of the five prior periods, six and twelve months later, the Nasdaq 100 was higher every time while

the DJIA was up four out of five times six months later and all five times over the course of a year.

Oversold Tech, Overbought Industrials (4/16/85 = 100)

Forward Returns On NASDAQ 100 Oversold, Dow Overbought (%)

0.30

-0.54

4.50

13.02

22.58

-1.07

0.18

3.48

5.95

15.19

-5

0

5

10

15

20

25

1 Week 1 Month 3 Month 6 Month 1 Year

NASDAQ 100

Dow

64

128

256

512

1024

2048

4096

8192

16384

NASDAQ 100

Dow

NASDAQ <1.5 SD Oversold, Dow >1.5 SD Overbought



Whereas the major indices had been in consolidation for the better part of the past month, we have

been encouraged by the ability of most major indices to break their short-term downtrends.

• The pull back for large cap equities was perhaps the least dramatic as the S&P 500 only fell 5.75%

from its intraday high on February 16th to its intraday low on March 4th. Since then the index has

returned to new all time highs rallying 6.36% from those lows through Thursday’s high. It hasn’t

quite broken out at this point, but looks a lot healthier than it did to start the week.

• The Russell 2,000 and NASDAQ 100 experienced sharper drawbacks both falling over 10% from

their February intraday highs through the lows last week.

• While small caps have broken the initial downtrend and entirely recovered from that decline, the

NASDAQ has been another story.

• As shown in the top right chart below, the NASDAQ had broken its downtrend like the Russell

2,000 and S&P 500, but it still sits much further below its higher levels of the past month. In Fri-

day’s pullback, it managed to stay above the former downtrend, so that was encouraging.

• We often harp on the semiconductors importance as a leading indicator for the broader market,

and in the current situation, it has not confirmed the breakout. Although the broader indices have

broken out, the Philadelphia Semiconductor index (SOX) has yet to break its downtrend on Thurs-

day before reversing lower alongside the NASDAQ on Friday.

• Not to minimize the weakness in the SOX, but part of the reason for the group’s surge earlier this

year was on worries over supply issues, so the recent pullback may just be a return to equilibrium.

Russell 2,000 Intraday - Past Four Weeks

S&P 500 Intraday - Past Four Weeks

Philadelphia Semiconductor Index Intraday - Past Four Weeks

NASDAQ 100 Intraday - Past Four Weeks

2075

2125

2175

2225

2275

2325

2375

3700

3750

3800

3850

3900

3950

4000

2700

2900

3100

3300

12150

12450

12750

13050

13350

13650

13950



One interesting set of statistics that caught our eye this week concerned the dismal record of active

fund managers in their performance relative to their benchmark indices. Both sets of statistics came

from studies from S&P Global.

• The first chart shows the percentage of active large cap US equity mutual funds that have outper-

formed the S&P 500 over various time intervals.

• In the last year, only a little more than a third of active large cap funds outperformed the S&P 500.

While that sounds bad, the longer your time horizon, the fewer funds there are that have outper-

formed. Over the last 10-years less than 18% of funds in the space have outperformed, and over

the last 20 years less than 10% have outperformed.

• For individual years, the performance results aren’t any better. While only 43% of Domestic Equity

funds outperformed the S&P 1500 last year, that was actually the best performance since 2013!

• In the last 20 years, there have only been six other years that the majority of funds in this group

outperformed the S&P 1500.

Large Cap Fund Managers Consistently Underperforming the S&P 500

Percentage of active large cap US equity funds

outperforming S&P 500

36.8

28.822

17.913.1

9.8

0

10

20

30

40

50

60

70

80

90

100

1-Year 3-Years 5-Years 10-Years 15-Years 20-Years

Per

cen

tage

Ou

tper

form

ing

(%)

Outperforming the S&P 500 is Uncommon

Percentage of domestic equity funds outperforming the S&P 1500

0

10

20

30

40

50

60

70

80

90

100

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Per

cen

tage

Ou

tper

form

ing

(%)

https://www.spglobal.com/spdji/en/spiva/article/spiva-us



So why do so many actively traded funds underperform their benchmarks? One key reason is that they

are managed by humans, and therefore, fall victim to tendencies like FOMO and chasing headlines.

They often buy strength, sell weakness, making a lot of foolish trades along the way.

• In last week’s report, we provided an update showing a breakout of the S&P 500’s cumulative re-

turns based on overnight versus intraday performance.

• As that update illustrates, all of the market’s gains in the last several years have occurred outside

of regular trading, while returns during the trading day have actually been negative. In other

words, no one gets rich trading the market’s moves during the trading day.

• This week provided a perfect example of this pattern. For the S&P 500 (SPY), nearly all of this

week’s gains came outside of the regular trading session. SPY’s cumulative return outside of trad-

ing hours was a gain of 2.33% while the cumulative return between the bells was just 0.38%.

The chart below provides another example of how extending the length of your holding period increas-

es the probability of positive returns.

• For any one-day holding period in the S&P 500’s history, the frequency of positive returns is just a

little better than a coinflip at 52.4%.

• If you’re willing to stretch your holding peri-

od out to a week, though, the odds of suc-

cess increase by nearly four percentage

points while the frequency of gains for any

one month period increase to just under

60%.

• One year later, the odds of a positive return

shoot up to 69%, and from there, the odds

of success keep rising all the way out to

88.2% for all ten-year holding periods.

• Just like in baseball, if you swing at every pitch, you’re also likely to strike out a lot more often.

S&P 500 Frequency of Gains Based on Holding Period: 1928 -

52.456.1

59.963.4

66.6 68.3 69.0

76.0 77.8 77.4 79.2

88.2

0

20

40

60

80

100

Date Gap Open - Close

3/8 0.27 -0.76

3/9 1.08 0.34

3/10 0.65 -0.03

3/11 0.68 0.33

3/12 -0.37 0.51

Total 2.33 0.38

SPY Overnight vs Intraday Performance: Week of 3/12

SPY Change (%) Open to Close (%)Prior Close to Open (%)

-1.00

-0.50

0.00

0.50

1.00

1.50

3/8 3/9 3/10 3/11 3/12 3/8 3/9 3/10 3/11 3/12

https://www.bespokepremium.com/interactive/posts/bespoke-report/the-bespoke-report-nasty-nasdaq



We haven’t discussed it a lot in this week’s report because it’s become so obvious by now, but interest

rates continue to be the tail wagging the dog of growth/tech stock performance. If bond futures are up

(interest rates down), so is the NASDAQ 100. Moves lower in bond prices (interest rates up) have

meant drops for that proxy of tech and growth stocks.

• To quantify the relationship, the beta—a measurement of the relationship between two securities-

of the NASDAQ 100 to 10-year Treasury bond prices has been well over two, which is an extremely

unusual state of affairs.

• As shown in the chart at

right, the rolling 3-month

beta has been as high as 2.91

back in late 1990, while as

low as -7.01 as the tech bub-

ble collapsed. Currently, the

rolling beta is at 2.82, sur-

passed only by the late 1990

period. In other words, this

degree of exposure to rates

for tech stocks is incredibly

unusual.

We were also curious if periods of high beta to bonds for the NASDAQ 100 were a bullish or bearish

signal for forward returns of the index.

• During most periods (from roughly the 15th percentile to the 75th percentile), beta to rates

doesn't mean much for forward returns. But when the NASDAQ 100's beta to rates is very low or

very high, short-term forward returns surge.

• The only period with substantially negative forward returns has been when the NASDAQ 100

moves extremely inverse to 10-year note prices. In other words, if rates and the Nasdaq 100 are

both surging to an extreme degree, that tends to be a very bad sign for the Nasdaq 100's short-

term forward returns.

• However, when there

has been a high beta be-

tween the Nasdaq 100

and 10-year US Treasury,

forward short-term re-

turns for the Nasdaq 100

have been strong.

Growth/Tech Exposure To Rates Is Near Record Highs

11/12/1990, 2.91

9/8/1998, -5.86

9/21/1999, 2.65

1/5/2001, -7.01

8/6/2002, -4.53

9/15/2006, 1.60

1/23/2019, -4.84

3/9/2021, 2.82

-8

-6

-4

-2

0

2

4

Rolling 3m Beta of NASDAQ100 to 10y UST

All Periods

Distribution of NASDAQ 100 Returns By Percentile of Rolling 3m Beta To 10y UST

-15.53

31.35

-20

-10

0

10

20

30

40

Avg

3m

NA

SDA

Q 1

00 F

wd

Re

tun

(%)

Distribution of Rolling 3m NASDAQ 100 Beta to 10y UST



Looking more specifically at the Nasdaq 100’s performance following the three periods highlighted on

the prior page where beta spiked higher, the chart below shows the Nasdaq 100’s performance in the

year that followed each of those three periods.

• Of the three periods shown, the minimum one year forward return was over 20% following the

2006 occurrence.

• In each of the other two periods, though, the Nasdaq 100 was up over 50%!

• We stress that this is a small sample size, but it provides a counter to the argument we have con-

stantly heard in recent weeks that growth stocks can’t rally with rates rising.

Nasdaq 100 Performance Following Spikes in Beta Relative to 10-Year Yield

-20

0

20

40

60

80

100

0 1 2 3 4 5 6 7 8 9 10 11 12

Per

cen

t C

ha

nge

(%

)

Months

11/12/1990 9/21/1999 9/15/2006



We want to close out this week by addressing another narrative that’s been gaining steam in the last

several weeks. With Spring on the horizon, and vaccine distribution in the US widening, there’s grow-

ing optimism that with all the pent up demand, Americans are itching to get out and therefore, we’re

in for a period like the roaring 1920s where the economy will boom and stocks will soar. We’re never

ones to try and predict the future, but the ‘twenties’ of today aren't the same twenties as a hundred

years ago. For starters, the 1920s not only followed a global pandemic, but also a world war.

• Not only that, but the booming

stock market of the 1920s also

followed a decade where the

stock market did nothing. After

years of stagnation, the DJIA

market was primed for a boom,

which is exactly what eventually

happened.

• The 2020s, on the other hand,

are following a decade where

the DJIA has already rallied

169%.

• This doesn’t mean that stocks

can’t keep rallying from here,

but to expect a boom in the

stock market like the one of the

1920s is setting the expecta-

tions bar to a level that will like-

ly only lead to disappointment.

• Given the gains already seen heading into this decade of the twenties, returns for the remainder of

the decade are likely to be a lot more boring than the twenties of a hundred years ago.

With that we’ll call it a week. Have a great weekend, and we’ll be back at it on Monday morning!

Bespoke Model Growth Portfolio

Bespoke Model Dividend Income Portfolio

Bespoke Tactical Macro ETF Portfolio

Dow Jones Industrials Performance (%): 1910 - 1930

-50

0

50

100

150

200

250

300

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29

1910 - 1919: +9%

Dow Jones Industrials Performance (%): 2010 -

-50

0

50

100

150

200

250

300

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29

2010- 2019: +169%

https://www.bespokepremium.com/interactive/research/bespoke-model-portfolio

https://www.bespokepremium.com/interactive/research/bespoke-dividend-income-portfolio

https://www.bespokepremium.com/interactive/research/bespoke-tactical-etf-portfolio



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Roaring or oring?

Documents

Transcript of Roaring or oring?