Travel And Leisure Companies Should Benefit From Satisfying Pent-Up Demand

The travel and leisure segments of the market may be some of the most value oriented ones as their business has essentially been shutdown due to the COVID-19 virus. As the global economy began to be shuttered in February last year, travel companies like Carnival (CCL) and Norwegian Cruise Line (NCLH) experienced significant price contractions as seen in the below chart. When comparing their returns since the beginning of 2020, many of the stocks remain down far more than the broader market or S&P 500 Index. One outlier is Expedia that is up 49.5% versus the S&P 500 Index return of 20.4% since the beginning of 2020.

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Value Stocks Outperforming For Now

Large cap value stocks have come to life this year after underperforming growth for most of the last 15-years. As the below chart shows, the Invesco Pure Value Index (RPV) is up nearly 15% this year compared to the Invesco Pure Growth (RPG) Index return down .12%.

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Interest Rates Pressuring Bond Returns

It is not uncommon for the yield curve to steepen as the economy exits a recession and transitions into expansion mode. After another Fed induced yield curve inversion in August of 2019, the economy dipped into a recession at the end of 2020. Certainly the pandemic shutdown contributed to the recession, but possibly the economy was headed in that direction anyway following the yield curve inversion.

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High CEO Confidence Not Reflected In Consumer Confidence

Last week the Conference Board reported the Measure of CEO Confidence for the first quarter of 2021 at 73, a 17-year high for the reading. A as the Board notes, readings above 50 reflect there were more positive than negative responses. The survey was conducted January 14 through January 29. As reflected by the consumer though, the Conference Board's reading shows consumer confidence at 89.3 and far below the 135 reading prior to the pandemic induced recession. The consumer reading is anticipated to be updated in the coming week. Of significance is the fact other consumer confidence and sentiment readings, like University of Michigan's, also show lower levels of consumer confidence.

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Continued Deterioration In Small Business Optimism

Today's Small Business Optimism Report by the National Federation of Independent Business (NFIB) shows continued deterioration in business owners optimism in January. The Index fell .9 points to 95.0 versus December's reading and taking it below the 47-year average of 98. The quarter over quarter absolute change is a minus 9 points and is the largest change since the -13.4 and -10.1 point change in April and May of 2020.

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A Weaker Jobs Recovery Seems To Be Unfolding

In a post I wrote in late January I noted the headwind that an increased regulatory and tax burden is likely to have on economic growth. Last week's jobs reports provided further evidence that a slower economic environment may be taking hold. As the below chart shows, the level of employment seems to be trending sideways and is approaching the trajectory of the slow job recovery following the financial crisis in 2008/2009.

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Most Shorted Stocks Power Higher

At the end of November last year I highlighted the fact the most shorted stocks had started to gain momentum at the beginning of October. Fast forward to the start of February and Refinitiv's U.S. Most Shorted Stock Index has continued to generate outsized gains. For the last four months the Refinitiv U.S. Most Shorted Index is up 92.8% versus 10.4% for the S&P 500 Index. Half of this gain has occurred in January with the Shorted Index up 40% as seen in the second chart below.

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