For September 2020, we have put together some visual highlights of the state of markets over the past month. We touch on energy stocks, European banks getting crushed, insights on value investing and a humorous look at analyst estimates.
September 2020 – Market in Pictures
When if ever will oil stocks stop their relative and absolute decline which in recent months has been nothing short of calamitous? Estimates are that energy stocks will soon comprise less than 2% of the S&P 500. While we note stories such as the export of new small nuclear reactors from Korea, we suspect that the complete doom for oil related companies might not yet be at hand. We also note, however dirty, many fossil fuels are still discernably cleaner than the 20 new coal plants recently announced by China. A recent chart that captured our interest was that of British Petroleum, for the last 25 years:
OUCH! BP drops to 25y low a week after unveiling climate strategy. Shares of oil giant fell 2.8% to lowest since Oct1995. New CEO Looney just revealed his plans for clean energy https://t.co/62rdMIi8qD pic.twitter.com/TsFzb1gduz
— Holger Zschaepitz (@Schuldensuehner) September 24, 2020
Yes, we do know that the chart does not include dividends and the (lucky?) owners of BP have certainly fared better than holders of German bank stocks which have a total return that is negative for a similar and very depressing amount of time.
Good Morning from #Germany where German banks index got another hit by new corruption allegations. Dropped a further 10% in the past 3 trading days. All listed German banks have a combined mkt cap of ridiculous €21bn. pic.twitter.com/jatY6r5a3F
— Holger Zschaepitz (@Schuldensuehner) September 23, 2020
European bank stocks hit rock bottom, AGAIN! pic.twitter.com/51Gclqsn9a
— jeroen blokland (@jsblokland) September 22, 2020
A more interesting comparable is that of Exxon versus the S&P 500 and the price of one barrel of West Texas Intermediate crude oil.
Found this chart to be very interesting.
Exxon relative to S&P 500 overlapped with WTI.#OOTT pic.twitter.com/Ee5XIHK4Pf
— HFI Research (@HFI_Research) September 27, 2020
Here we note what appears to be a notable divergence between the market and more dramatically, the price of oil itself. Aside from shifts in the longer-term prognosis for the use of fossil fuels in the global economy, what else might be destroying the valuation of energy related stocks?
A recent report from Bloomberg observed that Environmental and Social Governance (ESG) assets had now reached $40 trillion globally. While our knowledge of supply and demand elasticities might be limited, we do feel confident enough to state that flows of this magnitude will definitely drive prices. Investors might ask whether prices driven by ESG mandates reflect fundamental values or social ones?
— THE LONG VIEW ⚫️ (@HayekAndKeynes) August 28, 2020
2020 has been a year of extremes, though the 10-year underperformance of Value versus Growth has now been a decade in the making.
Value stocks’ massive underperformance this year & those leading up to it has led to worst ever 10y annualized return relative to Growth @SoberLook @BankofAmerica @Fama_French pic.twitter.com/nDHfokcqmd
— Liz Ann Sonders (@LizAnnSonders) September 10, 2020
Some have observed, perhaps very correctly, that value stocks have little intangible capital, such as that extant in Technology, and the so-called FAANG stocks in the United States and the BAT stocks within China. Valuation measures that exclude intangibles now exclude as much as 80% of market assets.
Idea: A value ETF that includes intangibles in its price-to-book ratios. To trade with the ticker $UCANT (TOUCH THIS) pic.twitter.com/ZkKNmwPjVr
— Tracy Alloway (@tracyalloway) September 9, 2020
Interestingly, it is among smaller companies where the exclusion has the greatest impact, as pharmaceutical and biotech spend heavily on research and development, comprise a much greater share of small capitalization stocks (15%) than large capitalization (7%) stocks.
Looking closer at the small cap universe, we see the percentage of non-earners at historic highs. Collectively, the charts and observations above, suggest opportunities in small stocks with earnings in boring industries, places where hard work is done.
Small-caps’ fundamentals still considerably weak; number of non-earners in Russell 2000 (as % of total) ~35% & at historic highs … earnings growth expected to rebound for this year, but that doesn’t completely change quality angle @SoberLook @BankofAmerica @FactSet pic.twitter.com/lqS73tdpmu
— Liz Ann Sonders (@LizAnnSonders) September 22, 2020
Other charts we find interesting/amusing:
A Guide For First Year Analysts In Creating A Price Target pic.twitter.com/0eoK2proZm
— Andrew Thrasher, CMT (@AndrewThrasher) September 14, 2020
The Nasdaq and negative yielding bonds are both worth roughly $15T
Which makes more sense?
— 𝐏𝐢𝐧𝐞𝐜𝐨𝐧𝐞 𝐌𝐚𝐜𝐫𝐨 (@pineconemacro) September 15, 2020
China Now Has More Companies In The Fortune 500 Than The US | Zero Hedge https://t.co/QfLXlokqD3
— Paul Blinn (@PaulBlinn) August 14, 2020
“Modeling financial markets is hard – markets are complex, almost chaotic systems with very low signal-to-noise ratios. Any attempt to properly characterize market dynamics – as a requirement for constructing alphas, is brave, counterintuitive, and inefficient.”
enjoy the wkend
— MultifractelFarol Mephisto (@Mephisto731) September 5, 2020
AliPay does more payment volume than Visa and Mastercard…COMBINED!
V ~ $9 trillion
MA ~ $7 trillion
Combined ~ $16 trillion
AliPay ~ $18 trillion
— Ryan Reeves (@investing_city) August 28, 2020
Incredible stat from Bloomberg:
“This year’s gap between $SPX best/worst sectors is unusually wide. TECH is up +27% and is the top-ranked sector. ENERGY is in last place, down -47%.
The differential of 74 points was the widest through Sept. 15 for any two sectors since 2000.” pic.twitter.com/8qE1Zmn8hp
— Macro Charts (@MacroCharts) September 16, 2020
Smith and Wesson five year chart. Is it predicting a Trump loss? Started to rise in April after four year slump. Stock is up 3% pre-market. h/t @EddyElfenbein pic.twitter.com/v7EnWO4tts
— Robert Armstrong (@rbrtrmstrng) September 30, 2020
What drives equity returns? In aggregate, mostly sales growth and not multiples. But there is more than just that. The balance sheet and distributions matter as well. Introducing a fuller return breakout with @verdadcap. https://t.co/bNmisVnVrh pic.twitter.com/5elf521YpC
— Greg Obenshain (@GregObenshain) September 21, 2020
EU climate plan sets stage for explosive carbon price rise in reshape of EU’s energy infrastructure. Killer detail in EU’s 140-page climate impact report for 2030 is “one-off” rebasing of its cap-and-trade Emissions Trading Scheme to dry up excess permits. https://t.co/QItEuUubVt pic.twitter.com/frZuADR6wI
— Holger Zschaepitz (@Schuldensuehner) September 21, 2020
🇯🇵 Why Buffett Bought Japanese Stocks
by Nick Schmitz @verdadcap https://t.co/A6Kq7mZfrW pic.twitter.com/XAY4AiliIa
— Philippe 😷 Maupas (@philmop) September 15, 2020
Value Investing: When History May Not Be Enough https://t.co/TYWmmKioao
— Novel Investor (@NovelInvestor) August 7, 2020
Hey Elizabeth, Theranos used to be worth $9 billion, can you tell us how much it’s worth now? pic.twitter.com/sI3F1lES94
— Eddy Elfenbein (@EddyElfenbein) September 11, 2020
The New Paradigm of Interest Rate Investing
14 basis points for the Year Bill and 17 basis points for the 3 Year Note.
Jeez….. it wasn’t that long ago that 3’s were in the high twos then poked their head above 3% before yields started falling.
— InterestArb (@InterestArb) September 8, 2020
The 10-year yields 5.7%.
Not annually but cumulatively.
— Eddy Elfenbein (@EddyElfenbein) August 3, 2020
In the last 5-years SPY has returned zilch during the intraday session on Friday.
Don’t get tied to your longs today.
Trade it don’t date it. pic.twitter.com/hU3LspYszv
— Tyler Kling (@tylerhkling) September 11, 2020
The Fed now owns a total of 22,913 different securities according to Bloomberg. It is the world’s biggest investor pic.twitter.com/xTB1lkudLg
— zerohedge (@zerohedge) August 30, 2020
How big is the bond market? pic.twitter.com/OrJ5MBxqxz
— THE LONG VIEW ⚫️ (@HayekAndKeynes) September 2, 2020
The Age of Tech Giants… pic.twitter.com/pbik5ov4hU
— jeroen blokland (@jsblokland) September 6, 2020
Wonderful cartoon. Source: https://t.co/FrVaL3ZwWQ pic.twitter.com/SvSDUS3JyV
— Bob Seawright (@RPSeawright) September 5, 2020
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