Many have heard of the ‘misery index’ in economics which is basically the unemployment rate + inflation rate where a low number is better than a high number. Findings suggest a lead from an increase in the misery index and subsequent crime rate across many countries. The index has been critised for putting too much weight on inflation (equal weight) as unemployment rate is a stronger factor for happiness. That aside the misery index has its merits and in today’s equity research note we have taken the step to create an equity market ‘misery index’ consisting of some of the hardest hit industries due to Covid-19.
The equity market misery index consists of four industries: oil & gas (30% weight), airlines (20%), hotels, restaurants, and leisure (20%), and banks (30%). We use MSCI World total return indices to measure performance on each industry. The equity misery index is down 34% this year compared to the Nasdaq 100, reflecting the global technology sector, which is up 30%. This staggering divergence in performance within the economy in just nine months is what we call the K-shaped recovery. Read Steen Jakobsen’s latest macro research note called Beware the implications of the K-shaped future, which is good read on what it means in terms of macro. For the equity market the K-shaped recovery means higher equity index concentration driven by technology companies and increasing wealth concentration which will directly lead to regulation in the future.