Four items to discuss with you today:
#1: Every mid-December we publish a list of the year’s worst-performing names in the S&P 500. The point is not to cast stones, but rather to highlight stocks that might be seeing tax loss selling pressure this month. Over the years we’ve seen many investors buy such names in December, hold them until January/February, and see decent positive returns.
The sharp-eyed reader will recognize this strategy as a variation on the “January Effect”. Tax loss selling in December leads to a bias for upward market direction in January. By looking at the worst-performing names all we’re doing is isolating the effect where it should be most pronounced.
Here are all the names in the S&P 500 that are down more than 18 percent on the year (17 in total):
- Twitter (TWTR): – 18 percent
- PayPal (PYPL): -19 pct
- Fleetcor (FLT): -19 pct
- Zimmer Bionet (ZBH): -21 pct
- ViacomCBS (VIAC): -21 pct
- Discovery (DISCA): -22 pct
- Teleflex (TFX): -22 pct
- Lamb Weston (LW): -22 pct
- Fidelity National Info Systems (FIS): -22 pct
- IPG Photonics (IPGP): -25 pct
- Wynn Resorts (WYNN): -24 pct
- MarketAxess (MKTX): -28 pct
- Viatris (VTRS): -30 pct
- Activision (ATVI): -32 pct
- Las Vegas Sands (LVS): -38 pct
- Global Payments (GPN): -39 pct
- Penn National (PENN): -41 pct (note: only added to S&P in March 2021)
Three points about this list:
- It has some surprising names on it, such as Twitter, PayPal, and Activision. Remember – these are among the worst performing stocks in the S&P 500, not merely modest underperformers.
- Many of these stocks performed very well today (+3 – 8 pct). Tax loss selling season may be coming to a close, which is one more reason US equities could be in for a further bounce into year end.
- If you’re interested in using this list for idea generation, we’d suggest either doing a lot of work on a few of the ideas or buying the entire list. What we’ve found over the years is that 1) usually just a handful of names provide all the upside and 2) one often must wait until February (with Q4 reporting season) to see the upside come through. Lastly, this strategy requires a strong stomach and (of course) there are no guarantees in life or investing …
Takeaway: these are the sorts of names that should work in January – February 2022, so it’s worth tracking them as we start the new year. Something tells us that January 2022 will be every bit as choppy as December 2021. If these stocks can’t rally next month, it will tell us something important about larger market dynamics.
#2: Year-to-date performance of US/global Environmental, Social and Governance (ESG) oriented exchange traded funds. ESG comes in many flavors, so we pulled together a representative list of funds to compare their YTD returns to the relevant indices.
We’ll start with a comparison of the S&P 500 to various US large cap ESG funds:
- S&P 500: +23.8 percent YTD
- iShares ESG Aware MSCI USA (ESGU): +22.4 pct
- SPDR S&P 500 ESG (EFIV): +26.7 pct
- Xtrackers MSCI USA ESG Leaders (USSG): +26.4 pct
- iShares MSCI USA ESG Select (SUSA): +25.3 pct
- Vanguard ESG US Stock (ESGV): +22.3 pct
- ESG Average: +24.6 percent YTD
Comment: US large cap ESG funds have, on average, outperformed the S&P 500 this year. The only catch is that 2 (ESGU, ESGV) very modestly underperformed. That’s a good reminder that if one is interested in allocating to ESG, it is better to pick a few products rather than just one.
Now, here are US small cap ESG funds relative to the Russell:
- Russell 2000: +11.6 percent YTD
- S&P Small Cap 600: +21.2 pct YTD
- Average: 16.4 pct YTD
- Nuveen ESG Small Cap (NUSC): 14.6 pct
- iShares ESG Screened S&P Small Cap (XJR): +19.1 pct
- iShares ESG Aware MSCI USA Small Cap (ESML): +15.3 pct
- ESG Average: +16.3 percent YTD
Comment: US small cap ESG has held its own against the average of the Russell and the S&P 600.
Next up, MSCI EAFE (non-US developed economies):
- MSCI EAFE: +6.0 percent YTD
- iShares ESG Aware MSCI EAFE (ESGD): +6.9 pct
- Xtrackers MSCI EAFE ESG Leaders (EASG): +6.1 pct
- iShares ESG Advanced MSCI EAFE (DMXF): +6.6 pct
- ESG Average: +6.5 percent
Comment: our sample of 3 large EAFE ESG funds have all beaten the underlying index YTD. We think that’s more impressive than the US ESG track record in 2021. In the US, ESG can camp out in Big Tech names. Most of those have done well this year. In EAFE, there’s very little Tech so outperforming is not quite as simple.
And finally, MSCI Emerging Markets:
- MSCI Emerging Markets: -6.6 percent YTD
- iShares ESG Aware MSCI EM (ESGE): -6.8 pct
- iShares ESG Advanced MSCI EM (EMXF): +0.7 pct
- iShares ESG MSCI EM Leaders (LDEM): -3.4 pct
- ESG Average: -3.2 percent
Comment: ESG can’t save you from a tough tape, and EM was nothing if not stormy in 2021. It is also worth noting that this is another example where ESG diversification paid off this year.
#3: US office occupancy using our go-to resource, Kastle Systems, which has almost real-time information on this issue from ID/security card swipes at offices around the country. Here is their latest data, as of last Wednesday (December 15th):
The data here is a mixed bag. On the plus side, overall US office occupancy is holding in around 40 percent. On the downside, New York occupancy slipped 1.4 points last week, and most other markets saw declines as well. We live and work in Manhattan and can tell you that NYC occupancy will continue to drop significantly through the end of the year. This is not due to just the usual holiday vacation season; many businesses have given their employees permission (and encouragement) to work from home until at least the start of the New Year.
Takeaway: the latest pandemic variant has clearly slowed return to office trends, and we expect this overhang to persist at least into January. At the margin, this could affect job growth in urban areas which still have high levels of unemployment. As we’ve been outlining in our monthly state- and city-level employment analyses, it will be increasingly difficult for the American economy to create jobs except in large urban centers. As an example of this phenomenon, recall that November only saw 210,000 jobs added to the US economy, the smallest gain of the year. A prolonged period of work from home in Q1 2022 could make for several months of disappointing job gains. Yes, just as the Federal Reserve proceeds with its accelerated tapering of bond purchases.
Kastle Systems Back to Work Barometer: https://www.kastle.com/safety-wellness/getting-america-back-to-work/
#4: With the latest virus variant spreading in the last days of the Holiday shopping season, we looked at a raft of Google search volume data for insight into the American consumer’s state of mind as we end the year. People tend to search for information before making a purchase or frequenting an establishment, so data from Google Trends serves as a real-time indicator of demand. Here is the data:
#1: US Google searches for “Amazon” and “Mall” since January 2020 (pre-pandemic):
- Queries for “Amazon” picked up in mid-March 2020 when lockdowns started, while those for “mall” declined as people stayed home. Searches for the online retailer fell and those for “mall” recovered over the Summer of 2020 as the virus outlook improved.
- Searches for “Amazon” started rising in early October 2021 and began climbing even quicker since early November.
- Queries for “mall” were up almost double (73 pct) over the week of Black Friday versus the same period last year. That makes sense given that vaccinations only started rolling out in earnest this year. That said, searches over the last week are only up 43 pct compared to the same week in 2020.
Takeaway: interest in “Amazon” reached a 5-year high last week amid the worsening outlook for the latest virus variant, while Americans are only slightly more interested in going to the mall than this time last year.
#2: US Google searches for “restaurant” over the last 5 years:
- Searches for “restaurant” collapsed amid lockdowns in March 2020, as shown towards the middle of the graph below. They recovered somewhat over Summer 2020 as Americans could more easily dine outside with warmer weather.
- Queries trended higher during 1H 2021 as more Americans got vaccinated and peaked this past July amid pent-up demand.
Takeaway: Interest in going out to eat has continued to roll over since this past Summer and searches are now at the lower band of the pre-pandemic range.
#3: US Google searches for “Doordash” and “Grubhub” over the last 5 years:
- Searches for these food delivery services spiked after lockdowns in April 2020, as shown to the right of the middle of the graph below.
- Since then, searches for “Grubhub” have trended lower to around 2019 levels. Food delivery platforms started in urban areas given their business models work best in densely populated settings. This particular service is also especially popular in cities, so it clearly converted most new adopters when the pandemic commenced.
- By contrast, searches for “Doordash” continue to exceed pre-pandemic levels. They hit a then all-time high in early December 2020 as Americans stayed hunkered down at the end of last year. Queries have been rising since late November 2021 to its best levels this year since the week of Valentine’s Day. They are even up a slight 4 pct over the last week versus the same period in 2021.
Takeaway: Doordash is a common delivery service in more suburban areas, so it shows a continuation of elevated new adopter interest outside of cities versus pre-pandemic levels. That’s clearly been helped of late with the new virus variant, along with the wave of suburbanization over the last +20 months.
#4: US Google searches for “New house” and “New car” over the last 5 years:
- Searches for “new house” and “new car” hit their pre-pandemic 5-year highs in December 2020, or the end of the last economic expansion when growth was especially robust.
- Interest in both terms picked up in the Spring/Summer 2020 as Americans sought more room amid stay-at-home orders or relocated from cities to the suburbs.
- Queries for “new house” remained elevated above pre-pandemic levels for most of 2020/2021, but have been falling since early October and are now at a 5-year low. Searches for “new car” trended higher throughout 1H 2021 until hitting a 5-year high this past July, but have declined since and are currently around 5-year low levels.
Takeaway: the latest house/car upgrade cycles caused by the pandemic are largely over.
#5: US Google searches for “Expedia” over the last 5 years:
- Searches for this travel booking site plunged after lockdowns in March 2020 and rebounded slightly heading into that Summer amid vacation season.
- Queries trended higher throughout 1H 2021 as Americans increasingly were vaccinated and reached its post-pandemic peak this past June.
- Interest in “Expedia” has continued to fall since the Summer and is currently hovering just above some of its worst levels during the pandemic.
Takeaway: Americans are largely uninterested in traveling in the near-term, which will likely continue into Q1 2022 depending on the virus outlook.
Bottom line: Americans are going out to shop more than over the holidays last year, but the real breakout is their propensity to now buy products online (i.e. Amazon) even more than at any point since the pandemic started. They are also growing uninterested in eating out, while those especially in the suburbs are turning to DoorDash to get food delivered. Again, this pickup in interest mostly reflects new adopters since people usually download the app and therefore no longer need to search for it thereafter.
Clearly, Americans are reverting to staying home again as the new virus variant spreads, which is also reflected by the notably low levels of searches for travel booking site “Expedia”. This last term is important because it is a forward-looking indicator of demand. Consumer behaviors are relatively sticky, showing Americans will likely want to continue largely staying in past Q4 and into Q1. These tensions help highlight why US equities have proven so choppy.
That said, there’s few economic catalysts in Q1 even during normal times (i.e. lack of holidays/vacation breaks) and these factors could keep savings rates elevated. While our analysis showed the latest home and car upgrade cycle is largely over, that leaves more money for Americans to spend once they feel safe going out and traveling again in 2022. We are therefore still positive on US corporate earnings and equities.