Topley’s Top 10 – September 28, 2020

1. Small Caps Have Historically Outperformed Large-Cap Post Trough

2. Blackrock…U.S. Inflation Market Pricing vs. Our Estimate 2015-2025

Chart of the week
U.S. inflation market pricing vs. our estimate, 2015-2025

U.S. inflation market pricing vs. our estimate, 2015-2025

Forward-looking estimates may not come to pass. Sources: BlackRock Investment Institute and the Federal Reserve with data from Refinitiv Datastream, September 2020. Notes: The chart shows a market measure of what five-year inflation expectations based on the consumer price index (CPI) will be in five years’ time. We show it using the five-year/five-year inflation swap. The line is shifted forward five years. The orange dot shows the BlackRock Investment Institute’s current estimate of average U.S. CPI inflation for the same five-year period of 2025-2030.

We expect annual growth in the U.S. consumer price index (CPI) to average in the range of 2.5% to 3% between 2025 and 2030, as the chart shows. This is broadly consistent with inflation moderately above the Fed’s 2% target (CPI inflation tends to run above the Fed’s preferred gauge based on the personal consumption expenditures, or PCE, price index), and a jump from current market-implied inflation. Rising global production costs are the trigger. The Covid shock is driving up costs in contact-intensive services, and could speed up deglobalization and the remapping of supply chains for greater resilience against a range of potential shocks. Less offshoring could give domestic workers more bargaining power on wages, especially in places where the political pendulum is swinging toward addressing inequality. So-called superstar companies – many in the tech sector – could gain greater ability to pass on higher production costs to customers, having achieved dominant market shares.


By John Butters  |  September 25, 2020  FACT SET

For the second quarter, 53 S&P 500 companies issued quarterly EPS guidance, which was the lowest number of S&P 500 companies issuing EPS guidance for a quarter since FactSet began tracking this metric in 2006. Are fewer S&P 500 companies issuing EPS guidance for the third quarter as well?

The answer is yes. To date, 67 S&P 500 companies have issued EPS guidance for Q3 2020, which is 36% below the five-year average of 104. If 67 is the final number for the quarter, it will mark the second lowest number of S&P 500 companies issuing EPS guidance for a quarter over the past 10 years (Q4 2009), trailing only the record-low number of 53 in the previous quarter. However, it will mark a 26% increase over the previous quarter as well.

No. of S&P 500 Cos Issuing Quarterly EPS Guidance 5-year

The low number of S&P 500 companies issuing EPS guidance for the third quarter is due to a substantial decrease in the number of S&P 500 companies issuing negative EPS guidance for the quarter. Of the 67 companies that have issued EPS guidance for Q3 2020, only 22 have issued negative EPS guidance. This number is 69% below the five-year average of 70.5. In fact, if 22 is the final number for the quarter, it will mark the lowest number of S&P 500 companies issuing negative EPS guidance for a quarter since FactSet began tracking this metric in 2006. The current record is 28, which occurred in the previous quarter. At the sector level, eight of the 11 sectors have seen fewer companies issue negative EPS guidance for Q3 2020 relative to their five-year averages (rounded to the nearest whole number), led by the Consumer Discretionary (1.0 vs. 15.5) and Health Care (1.0 vs. 11.2) sectors.,utm_device=c,utm_term=%2Bfactset,utm_source=google,utm_medium=ppc,utm_campaign={utmcampaign},hsa_cam=8835391608,hsa_grp=91984082834,hsa_mt=b,hsa_src=g,hsa_ad=412551945106,hsa_acc={9972562989},hsa_net=adwords,hsa_kw=%

4. Energy Consistent Worst Sector Performer for 5 Years.

Low Energy” Energy-Bespoke Investment Group

US stocks are looking to close out the week on a positive note with the S&P 500 up over 1%.  One sector that hasn’t been participating in the rally, however, is Energy.  While it just moved back into positive territory for the day, the sector remains at the back of the pack in terms of sector performance.  If these levels hold for the remainder of the trading day, it will be the69th time in the last 200 trading days that Energy has been the worst-performing sector. That works out to more than once every three trading days.  Talk about a sector that’s in liquidation mode!

The chart below shows the rolling 200-day total number of days that Energy has been the worst-performing sector in the S&P 500.  While the current level of 69 is extremely high, earlier this month the rolling 200-day total was even higher at 71.  Over this same period of time, no other sector has even seen close to as many days of ranking at the bottom as Energy.  The next closest is Utilities as it has been at the bottom of the pack in terms of performance on 36 of the last 200 trading days.  It hasn’t just been the last 200 trading days that have been rough for the Energy sector.  Over the last five years, the sector has been the worst-performing sector on just over 23% of all trading days.  Is this what it felt like for the horse and buggy companies in the early 1900s or the ice-harvesting companies after the invention of electric refrigeration?

5. S&P 500 Cash +35% Year to Date.

From Barry Ritholtz The Big Picture Blog

6. IPO Boom—80% of Money Raised=Healthcare, Technology or SPACS

WSJ-By Corrie Driebusch

This year, more than 80% of the money raised by initial public offerings falls into three buckets: healthcare, technology and newly popular blank-check companies—shell firms whose only purpose is to acquire a private target and take it public. That is the most concentrated the IPO market has been since 2007, according to Dealogic, when new listings of banks and lending institutions flooded the market before the financial crisis.

More than 235 companies have joined the U.S. public markets this year, on track for the most since 439 companies went public in 2000, according to Dealogic. They’ll soon be joined by giants Airbnb Inc. and Palantir Technologies Inc., which will go public later this year after long tours as private companies.

IPO Market Parties Like It’s 1999

Even in the midst of a recession, investors are pouring money into newly public companies at levels on par with the dot-com era

7. Dollar Rally This Week…Shorts Kept Selling Into Rally?


Dollar Positioning (updated). Despite the Dollar’s sharp rally this week, Futures traders SOLD another $2.5 Billion – now the biggest Short Dollar position in 9 years. If this USD rally continues, a lot of traders look headed for an expensive lesson in risk management.

9:00 AM · Sep 26, 2020·TweetDeck


8. Who Has The Power Over Federal Law Enforcement?


9. Institutional Money Pours Into Suburban Subdivisions

Wall Street’s New Suburban Subdivision Is Full of Renters-Bloomberg

Patrick Clarkand Noah Buhayar

Institutional money is pouring into single-family rentals

Demand for housing, affordability issues fuel industry

Wall Street won big buying up homes during the foreclosure crisis and renting them out. Now, it’s headed back to the suburbs in hopes of scoring again.

With the pandemic driving demand for larger living spaces, institutional investors are pouring money into single-family rentals. In addition to buying houses on the open market, they’re bankrolling subdivisions — inventing a new kind of suburban living that’s easier to afford, but where the financial benefits of homeownership go to Wall Street firms.

Blackstone Group Inc.Brookfield Asset Management Inc. and JPMorgan Chase & Co.’s asset-management arm have each made fresh bets on the industry since Covid-19 cases started surging, targeting a type of property big investors ignored until 10 years ago.

The investments come as publicly traded single-family landlords outperformed apartment owners, and social-distancing efforts make traditional commercial real estate, including hotels and retail properties, less appealing.

“It’s been a combination of the sector coming of age as well as the performance during the pandemic,” said Dana Hamilton, head of real estate at Pretium, whose Progress Residential manages roughly 40,000 rental homes. “Single-family rentals have been an island of strength during the storm.”

Same Homes

For decades, Americans have flocked to the suburbs in search of more space, better schools and a respite from the grind of city life. Those qualities have become more relevant in the era of Covid-19 and unrest in U.S. cities that has President Donald Trump promising to defend the suburban lifestyle.

Read more: Air Conditioners Break Faster in Work-at-Home Era

Whether landlords are shopping for existing homes or building them from the ground up, they want the same things that families have always favored. That means spare bedrooms, big garages and good neighborhoods.

Still, the new wave of investment shows how the single-family rental industry could change the U.S. housing market, providing affordable homes whose residents don’t benefit as values rise.

“It’s not a replacement if you’re trying to build wealth, but it gives you more options if you’re trying to figure out where to live, or you’re trying to build credit,” said Cheryl Young, an economist at Zillow.

On a September morning, several work crews were busy at one of American Homes 4 Rent’s new communities in Lake Stevens, Washington, about 35 miles (56 kilometers) northeast of Seattle. Rent is about $2,700 a month for a four-bedroom home with a fenced-in backyard in the 27-house development, which snakes down a street that ends in a roundabout backing up to a wooded area and an elementary school.

There’s little to distinguish the neighborhood from several others nearby developed by traditional homebuilders, and tenants are moving in just about as fast as the houses can be finished.

Rising Prices

American Homes, founded in 2012 by the self-storage billionaire B. Wayne Hughes, spent its early years building property-management systems to operate homes acquired in the aftermath of the foreclosure crisis.

After rising home prices made it harder for the company to score bargains, it decided to start building rental houses for itself. These days, it’s opening new communities at a pace of roughly one per week, chief executive officer David Singelyn said in an interview. The company’s share have gained 51% since the market hit a bottom on March 23.

Christopher Bernard, 34, signed a lease on a new American Homes property in Eagle Mountain, Utah, about 40 miles south of Salt Lake City, after he and his wife couldn’t close on a newly built home in the area. The rental house has nicer finishes, and costs less per month than what they would have paid on a mortgage.

“Someone who owns their house isn’t any different from someone who’s renting,” said Bernard, who teaches at a nearby university. “I’m proud because I can let my child run around on the lawn.”

Read more: Invitation Homes Eyes Next 80,000 Houses as Suburbs Boom

American Homes, which raised $625 million through a joint-venture with JPMorgan’s asset-management arm, isn’t the only company betting on purpose-built rentals. Amherst Group, another early industry player, hired a former construction executive as chief operating officer this summer with an eye to buying land and building its own homes. A former Colony Capital Inc. executive is raising $1.2 billion in equity and debt to build 5,000 rental homes.

Read more: Ex-Colony Executive Seeks $1.2 Billion for Single-Family Rentals

It won’t be easy for institutional landlords to remake the suburbs. Competition for construction workers, building materials and land could hold back rental developers, while low mortgage rates are helping boost home prices, making it harder to buy properties to convert for tenants.

Popular Bet

Mom-and-pop landlords still own the vast majority of single-family rentals, with large investors controlling roughly 2% of all rental homes, according to John Burns Real Estate Consulting.

Still, the industry has become a popular way for Wall Street to capitalize on the surging demand for housing, particularly as millennials look for more space and struggle to find homes they can afford to buy.

“If you take a step back, there’s not enough homes, and not enough affordable housing,” said Drew Flahive, who leads Amherst’s single-family rental business. “Our main focus with this business is creating supply that’s in such high demand.”

(Updates with American Homes 4 Rent share gain.)

10. Take a Break Today, or You’ll Break Apart

Ryan Holiday

Author of The Obstacle is The Way — Portfolio/Penguin Random House

16 articles Following

Some people aren’t strict enough with themselves. But some of us are too strict. 

The work from home situation in the pandemic has highlighted this difference in many of us. While many folks have struggled to get by financially, those lucky enough to keep working seem to fall into two camps. Some are spending all day in their pajamas, others are working longer hours than before. We feel obligated to answer every email, to accept every phone call, to show up for every Zoom call. Plus untold additional family and personal obligations.

No wonder that, according to a recent study done by EPIC Provisions, 60-70% of work from homers are feeling burned out. As it happens, this is an issue that dates way way back. 

Musonius Rufus, like a lot of the Stoics, was a strict man. He was strict with himself. He was strict with his students. He believed in hard work, he did not ease up, just because other people did or because he had been successful.

A friend would describe one evening, when in Athens, when they were enjoying the Saturnalia—quite pleasantly, in fact: “We did not, however, let our minds go lax,” he wrote, “for, Musonius says, ‘to let one’s mind go lax is, in effect, to lose it.’”

Unfortunately, this is a common belief, not just among the Stoics. People think they are too important, the stakes of their work are too high, that there is not a minute to lose. So they never relax. They never shut off their minds. They never check out, or let go. And far too often they end up losing it. 

EPIC’s survey found that those who are feeling burnout associate it with feeling the need to respond immediately, be on all the time and stuck to their computer. Taking a mental break and eating healthy snacks helps both personally and professionally. 

I certainly relate to that. 

“The mind must be given relaxation,” Seneca said, “it will rise improved and sharper after a good break. Just as rich fields must not be forced…so constant work on the anvil will fracture the force of the mind.”

All muscles need rest. The brain is no exception. Fields must be alternated. Computers must occasionally be shut down or rebooted. To not do this is to risk injury, poor yields, or damage. We are not in this life for the short term. We are trying to build sustainable, enduring success.

I’ve been excited the last week to work with EPIC on a campaign to encourage people to take more breaks. It’s important stuff. If you don’t take a break…you might end up being the one breaking.

Me? I like to get up early, tackle my important projects and then around 10 or 11, I get up from my desk and take a break. It’s too early for lunch and too late for breakfast, so I’ll grab a snack. I’ll read a book. Or go for a walk or call a friend. Sometimes I just stare out the window. I do the same in the afternoon, usually in the pool with my kids. But the point is: I let the mind go lax. 

On purpose. So I don’t lose it. 

Do yourself a favor and give yourself permission to do the same. 

#TakeAnEPICBreak this week! so you can continue to be your best self. 



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