Summary

  • The week ended August 21, 2020 saw the S&P rise 0.46% and the index is now up 5.47% YTD.
  • Factor-wise, it should be no surprise that Momentum led all categories, up 4.22% on the week on the backs of Apple (+8.52%), Tesla (+11.68%) and the tech index broadly.
  • The corporate quarterly reporting season is wrapping up, and Mr. Market favors those stocks with the highest Price Target Changes (+3.22% on the week) and the highest EPS Estimate Revisions (+2.11%).
  • Value reclaimed its Worst Performing Factor crown last week, finishing down -2.23%, bringing the YTD return down to -24.87%. We’re not holding our breath on a comeback…yet.
  • Share Buybacks continued its horrific factor performance, now down -14.42% YTD on the heels of a -1.54% week. In the low-growth Covid economy, organic growth remains in-demand, and less reward is placed on financial engineering such as share repurchases, a hallmark of low-growth banks and energy companies. We continue to expect this (welcome) trend change will continue through year-end.
  • Our Work From Home Index of stocks levered to trends within the “closing” of the economy rose 3.87% last week. Leaders included Target (+11.7%), Teledoc (+9.0%) and Zoom (+8.8%).
  • The FlowPoint Reopening Index – shares of 77 companies levered to a “reopening” of the economy – fell -0.24% on the week. Travel-related stocks such as Sabre (-16.0%) led the downside which also included energy (Marathon Oil -11.0%) and retailers (Party City was -10.7%).

Momentum was the top-ranked factor in the U.S. (all-market caps) last week, and is the fifth-best factor YTD. The four factors ahead of it are Growth, Volatility, Sell Side Expected Return and Revenue Estimate Dispersion. Essentially, fast-growing, volatile stocks where the sellside is confused about the outlook.

Momentum is a fickle friend – YTD it’s n outperforming factor, though looking back a year and then 15 years, it’s a detractor. Who knew “Buy high, sell higher” isn’t a long-term strategy?

The FlowPoint Work From Home Index of stocks continued to dominate investor appetites last week and is now up 58.1% YTD. Biotech components such as GILD, MRNA, CODX and INO were laggards, while the top of this leaderboard included mostly tech and consumer stocks.

On the other side of the ledger are the companies levered to travel, entertainment and office space – we calibrated an index of 77 such companies in the COVID cross-hairs (FlowPoint’s Reopening Index). These include airlines, restaurants, hospitals, cruise ships, travel agencies, retailers, live entertainment venues and other Covid-affecting industries. DM us If you’re on Bloomberg and we’ll share the Custom Indexes.

Clearly the Reopening Index is lagging the broader market. However, there are now 19 members of the Reopening Index are ranked “1” on our Trend1 model, and we own several, including ISRG and PENN.

Buyback Kings

The Buyback Kings – the 50 companies in the S&P 500 with the largest share repurchases – continued their horrendous performance last week, falling -4.6% on average and are now down -37.1% YTD on average. These stocks remain on the Avoid/Potential Short list not because they have large buybacks, but because the buybacks are symptoms of everything we don’t want exposure to – low organic growth, high debt and low returns.

Country ETF Scores

Global breadth continues to improve. It isn’t just mega-cap tech stocks in the U.S. that are positively trending. Currently ten out of the 43 country ETFs we track are ranked “1” by our Trend1 model, up from four last month. South American countries struggling mightily under Covd-19 also have among the worst of the world’s stock markets such as Brazil, Colombia, Chile, Mexico and Peru.

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