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Social Undistancing. Shifting from Covid-19 Leaders to Laggards Social Undistancing. Shifting from Covid-19 leaders to laggards. Pat Tschosik, CFA, CMT U.S. Sector Strategist June 2020 This virus is not fair. It has devastated the Leisure industry. Payrolls (millions) Feb-20 May-20 Decrease % of Total Financial Activities 8.8 8.6 -0.2 1.5% Information 2.9 2.6 -0.3 2.0% Other Services 5.9 4.9 -1.1 6.7% Business and Professional Services 21.6 19.4 -2.2 13.3% Education and Health Care 24.6 22.2 -2.3 14.5% Trade 27.8 24.9 -3.0 18.3% Leisure 16.9 9.8 -7.0 43.6% Total Private Services Payrolls 108.5 92.4 -16.2 100.0% Source: U.S. Bureau of Labor Statistics Ned Davis Research T_GEH20_09.1 Ned Davis Research Please see important disclosures at the end of this report. 1 It has hurt the less educated more than the highly educated. Unemployment Rate by Education Level Education Feb-20 May-20 Inc (% pt.) < HS Diploma 5.7% 19.9% 14.2 HS Dimploma 3.6% 15.3% 11.7 Some College 3.0% 13.3% 10.3 College Grad 1.9% 7.4% 5.5 < HS Diploma vs. College 3.8% 12.5% 8.7 Seasonally Adjusted. Source: Bureau of Labor Statistics. Source: U.S. Bureau of Labor Statistics. Ned Davis Research T_GEH20_09.2 Ned Davis Research Please see important disclosures at the end of this report. 2 It has greatly impacted young and female. Employment-Population Ratio Feb-20 May-20 Dec (% pt) Women Aged 16-24 52.0% 37.9% -14.1 Women Aged 25-54 74.7% 65.0% -9.7 Women Aged 55+ 34.0% 28.9% -5.1 Men Aged 16-24 52.8% 39.7% -13.1 Men Aged 25-54 86.5% 77.9% -8.6 Men Aged 55+ 45.3% 39.8% -5.5 Ned Davis Research T_GEH20_09.3 Ned Davis Research Please see important disclosures at the end of this report. 3 Covid Staples, Consumer Staples, Computer Staples have been our core. S&P 500 Industry Group Performance (Year-to-Date) Daily Data 2019-12-31 to 2020-06-22 -70 -65 -60 -55 -50 -45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 Materials -8.43% Energy -34.66% Semiconductors & Semiconductor Equipment 8.81% Technology Hardware & Equipment 12.26% Capital Goods -16.86% Software & Services 15.69% Diversified Financials -12.32% Banks -33.69% Automobiles & Components -26.91% Consumer Durables & Apparel -14.40% Consumer Services -21.85% Food & Staples Retailing -4.39% Pharmaceuticals, Biotechnology & Life Sciences 0.49% Retailing 21.62% Telecommunication Services -14.24% Real Estate -9.47% Utilities -10.83% Food, Beverage & Tobacco -9.94% Bond Proxy (-11.12%) Consumer (-1.03%) Credit Sensitive (-21.83%) Capex (4.98%) Commodity (-21.54%) Performance numbers in parenthesis in the legend are the macro group averages Source: S&P Dow Jones Indices -70 -65 -60 -55 -50 -45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 BA552D © Copyright 2020 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/ Ned Davis Research Please see important disclosures at the end of this report. 4 Software has become a defensive industry. Software Vs Industrial Equipment Capex Quarterly Data 2016-09-30 to 2020-03-31 10.5 Software Capex Y/Y (2020-03-31 = 7.4% ) 10.5 Industrial Equipment Capex Y/Y (2020-03-31 = -2.11%) 10.0 10.0 9.5 9.5 9.0 9.0 8.5 8.5 8.0 8.0 7.5 7.5 7.0 7.0 6.5 6.5 6.0 6.0 5.5 5.5 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 -1.5 -1.5 -2.0 Capex growth % represents nominal growth. Source: Bureau of Economic Analysis -2.0 Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar 2017 2018 2019 2020 ESX4584 © Copyright 2020 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/ Ned Davis Research Please see important disclosures at the end of this report. 5 Where are the Covid-19 laggards? S&P 500 Sector % in Bear Market Energy 96.2 Financials 72.7 Real Estate 71.0 Consumer Discretionary 65.1 Communication Services 57.7 Utilities 53.6 Materials 50.0 Industrials 37.5 Information Technology 29.6 Consumer Staples 24.2 Health Care 18.0 As of 6/15/2020. % in bear market is the percent of companies in the sector that are down more than 20% from their one-year high. Source: S&P Dow Jones Indices. Ned Davis Research T_GEH20_09.4 Ned Davis Research Please see important disclosures at the end of this report. 6 The laggards come with strings attached. Sub-Industry 100-day volatility (%) Y/Y % Return Oil & Gas Drilling 5.7 -53.3 Department Stores 5.5 -56.7 Tires & Rubber 5.1 -39.5 Motorcycle Manufacturers 4.9 -27.8 Airlines 4.9 -43.7 Aluminum 4.8 -47.5 Oil & Gas Equipment & Services 4.6 -40.9 Food Distributors 4.5 -28.2 Security & Alarm Services 4.4 -42.7 Airport Services 4.4 -23.6 Real Estate Development 4.4 -41.9 Casinos & Gaming 4.4 -12.0 Forest Products 4.3 -6.5 Oil & Gas Refining & Marketing 4.3 -17.7 Home Furnishings 4.3 -22.6 Hotel & Resort REITs 4.3 -36.6 NDR Multi-cap Sub-industries as of 6/15/2020. Source: Ned Davis Research. Ned Davis Research T_GEH20_09.5 Ned Davis Research Please see important disclosures at the end of this report. 7 To gain confidence, we would like volatility to fall. Global Stocks vs. S&P 500 Volatility Index (VIX) Daily Data 2007-12-31 to 2020-06-22 Global Stock Price Index** (2020-06-22 = 1,904.57) Bearish Signal on 2020-02-27 2,512 Max Drawdown Since Signal: -26.7% 2,512 1,995 1,995 1,585 1,585 1,259 1,259 1,000 1,000 794 794 631 631 -23.8 -20.4 -14.9 -16.5 -6.2 501 ** MSCI ACWI price returns Source: MSCI 501 S&P 500 Volatility Index (VIX) (2020-06-22 = 31.77) 80 80 70 Could see 70 60 a similar 60 50 flare-up 50 40 40 30 30 20 20 10 10 Source: Chicago Board Options Exchange, Incorporated. www.cboe.com 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Bearish signals (vertical dashed lines) = VIX crosses above 28.5 for the first Number of Analysis Median Median Drawdown Length Median Length to Drawdown time in at least six consecutive months. Cases Start Date Drawdown (Calendar Days) (Calendar Days) Shaded periods = maximum drawdown periods 8 1990-01-02 -19.4 88 79 for the 12 months following bearish signals. Customized version of I87 © Copyright 2020 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/ Ned Davis Research Please see important disclosures at the end of this report. 8 Lower correlations would increase confidence. Median 63-Day Correlation of S&P 500 Stocks to the S&P 500 Index Daily Data 1972-04-20 to 2020-06-22 S&P 500 Median 63-Day Rolling Correlation of 1-Day Returns(2020-06-22 = 0.76) 0.85 +3 SD 0.85 0.80 0.80 0.75 0.75 +2 SD 0.70 0.70 0.65 0.65 0.60 +1 SD 0.60 0.55 0.55 0.50 0.50 Mean 0.45 0.45 0.40 0.40 0.35 -1 SD 0.35 0.30 0.30 0.25 0.25 -2 SD 0.20 0.20 0.15 0.15 0.10 Shaded periods are NDR-Defined bear markets Source: Ned Davis Research, Inc. 0.10 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 BA0540D © Copyright 2020 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/ Ned Davis Research Please see important disclosures at the end of this report. 9 A declining death rate would reduce fear. COVID-19 Estimated Current Cases, Death Rates, and Recovery Rates Daily Data 2020-03-23 to 2020-06-22 Global Estimated Active Cases (2020-06-22 = 4100137) 4,000,000 4,000,000 3,500,000 3,500,000 3,000,000 3,000,000 2,500,000 2,500,000 2,000,000 2,000,000 1,500,000 1,500,000 1,000,000 1,000,000 500,000 500,000 0 Source: Haver Analytics 0 Global Recoveries as a Share of Resolved Cases(2020-06-22 = 90.6%) 90.0 90.0 88.0 88.0 86.0 86.0 84.0 84.0 82.0 82.0 80.0 80.0 78.0 78.0 Source: Haver Analytics Global Deaths as a Share of Cumulative Cases (2020-06-22 = 5.2%) 7.0 7.0 6.5 6.5 6.0 6.0 5.5 5.5 5.0 Important Trend 5.0 4.5 4.5 Source: Haver Analytics 20 24 26 30 1 3 7 9 13 15 17 21 23 27 29 1 5 7 11 13 15 19 21 25 27 1 3 5 9 11 15 17 19 Apr 2020 May 2020 Jun 2020 Customized version of IE20D © Copyright 2020 Ned Davis Research, Inc.
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