Thanksgiving Leftovers

By Erin M. Hay, CFA | Dec 09, 2019 | Weekly Market Commentary

I don’t have any one topic I want to cover today. There were a lot of big macro data points last week, and a lot of great reads. Think of today’s post as some delicious Thanksgiving leftovers, so let’s eat. 

My last post was on an investment in our Strategic Income Portfolio (Tanger Factory Outlet Centers, ticker: SKT). Since then, Barron’s published a positive article on SKT, making the case that shares are oversold. Positive Barron’s write-up’s are generally nice short-term catalysts, and the stock was up about 3.0% last Monday, and about 2.4% on the week. Again, this is more of an income story than a capital appreciation story, but it was nice to see shares stabilize a bit. 

Monday: An abysmal ISM Manufacturing report.  

The ISM Manufacturing report was down for the fourth month in a row and is in negative territory. The reading came in at 48.1 and anything less than 50 is consider negative growth. The last time this happened was November 2015 through February 2016, and before that July 2008 through July 2009. The former occurred in tandem with a meltdown in the energy sector and the latter, of course, was in connection with the Great Financial Crisis. Monday’s ISM news spurred an intra-day trading range of over 1% in the S&P 500 for the first time in 34 days, which is the fifth-longest streak since 1985 (per Bespoke Research). With consecutive negative days on both Monday and Tuesday, the month did not get off to a good start. 

Wednesday: More weak data.  

ADP Private Payrolls missed expectations, as did ISM Non-Manufacturing (reading of 53.9, so still above the 50 level). When you combine both ISM data points this week, (often referred to as the “Composite”), the November Composite score fell month-over-month from 54.0 to 53.3. Like the others, anything over “50” is still considered expansionary.  

Friday: A surprise in non-farm payrolls and unemployment.  

Non-farm payrolls were expected to be 187K for November, and came in at 266K, with the unemployment rate dropping from 3.6% to 3.5%. (Dave here: I heard on Friday that this is the best unemployment rate in 50 years, but that was on Fox Business News, so….) Talk about a pick-your-poison type of week for headline data: Weak ISM reports, flip-flops on trade headlines from the administration and a huge payroll beat. The S&P gapped up close to 1% Friday morning. 

 

Energy 

• No Brent in Brent. The Wall Street Journal reports that Shell is set to cap their last Brent oil well in the North Sea. This is significant because this field set in motion the creation of the Brent crude benchmark, which is one of two major references used to set prices on commodity futures markets. The other major oil benchmark is WTI (West Texas Intermediate), which represents a “lighter” type of oil that is mainly produced domestically in the U.S. 
• Speaking of U.S. crude, in September-October, the U.S. became a net exporter of oil for the first time since the stats have been tracked. The graphic below is telling. 

• The surge in domestic output – thanks in large part to major shale fields in Texas and New Mexico – is great news for consumers, but not so great for publicly-traded energy on the whole. While the S&P 500 is up nearly 28% year-to-date (YTD) on a total return basis, the Energy sector (as measured by XLE) is up only 6.8%. This is by far the weakest sector performance, with Healthcare the next worst-performing group, up 17.8% YTD. Further, energy now represents only 4% of the S&P, down from the 14% weighting it held in early 2009. 
• And here is a shocking stat for you: there are 28 companies in the S&P 500 Energy Sector. Their collective market cap: $1.1 trillion. This is less than the market cap of a single company. Apple. At $1.2 trillion.   
• Keeping with the energy theme: if you’re looking for a compelling Netflix watch this week, check out Last Breath. This is the story of a commercial saturation diver who survived without oxygen for 30 minutes at the bottom of the North Sea. 

There were a few other tasty bits that I didn’t cover from last week. Namely: mid-cap stocks and the performance of the S&P 500 “after-hours.” Until next time. 

Call the Team with any questions—I just wanted to share what Dave and I have been reading and chatting about over the week.  

Erin

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