Longer Term Data Over Shorter Term Data (Sunday Digest 7/26/2020)

For a long time, I’ve thought that too much financial news is canned for daily consumption. Why should we care about events that measure something over one day? The Post-Corona World has made this more of an issue as volatility has become elevated relative to the last decade of market action. We regularly consume articles about how Stock X plunged 5% today and Stock Y ripped 15%, when X is up 500% over the last 5 years and Y is still trading below its IPO price.

I want to try to combat this issue by publishing a regular series of charts with stuff I look at. I can’t promise it will be every week, but it will probably be Sundays to get ahead of the week’s open.

Sector Performance
Let’s start with comparing sector performance since the market peaked in February:

While SPY is down about 4% from the pre-Corona highs, note that XLE (tech, +5.79%, ), XLY (consumer discretionary, +4.02%) and XLB (materials, +1.87%) are all above their pre-COVID highs. Tech and consumer discretionary are obvious winners here and have been discussed at length on my podcast, but materials surprised me a lot. XLB is composed of over 20% Linde PLC ($LIN.L) and Air Products and Chemicals ($APD). I know nothing about either outside of the fact that both have surged since the bottom and put in 52w highs within the last few weeks:

This may be the subject of a future Stock Talking, as I wouldn’t expect chemicals companies to be performing so well in the midst of a global pandemic.

Another frequent pod theme but worth pointing out – financials, tech and real estate remain down true recession levels (down 30%, 21% and 17% respectively). The contrarian says all three in me are buys, as real estate inventory in many areas remains low relative to demand, banks continue to have fortress balance sheets and energy in my opinion was undervalued pre-COVID. $BRK.B I think is a good way to get exposure to all three.

Implied Volatility
Next, I want to look at volatility over the last year and the 5 stocks with the highest median strike price IV:


Top 15 median strike IV (and fake DFS prices for the DFS fans):

GE for a while on this list has been the number one volatility name; it reports earnings July 29th. A lot of the names here report earnings this week. $NOW I’m particularly excited about (also reports the 29th) – check out this Stock Talking for more thoughts on why I’m bullish on ServiceNow. I’m confident the company can reach its stated $10 billion revenue goal by 2023 and don’t think it’s crazy for it to trade at 15x+ revenue in today’s environment; given 15 turns at $10bn, the stock price would be ~$790 (currently $425).

Fear / Greed Index
CNN Business’s fear / greed index (see this article for explanation of how it’s computed):

We’re slightly on the side of overbought relative to last month per this metric.

Closing thoughts:
– XLB (materials) has done surprisingly well post-COVID, led by LIN and APD
– “Market” returns remain extremely tilted to tech and not representative of an equal-weighted sector portfolio. Continue to like financials, energy and real estate
– Fear / Greed index suggests investors are more bullish on market than last month

I want to add more metrics to this over time; reply to this e-mail with recommendations!

– Ben