Back in October we introduced the concept of an equity ‘Misery Index’ consisting of the industries oil & gas, airlines, hotels, and restaurants & leisure, which are the hardest hit segments of the equity market. Banks are probably the part of the misery index that has recovered the most and has the best upside potential over the short-term (discussed in yesterday’s equity update) due to rising yield curve and stimulus.
Our misery index is still down 13% late 2019 despite stimulus and a roaring bull market in the broader equity market and especially technology stocks. However, since late October, just before the Pfizer vaccine was announce, the misery index is up 36% indicating that investors are betting on these hardest hit industries. Most of the rebound in these industries came during November when the market discounted the vaccine rollout and normalization of the economy, but the trade has lost momentum as new Covid-19 mutations have forced new and prolonged restriction across many countries constraining activity in many of these ‘misery’ industries. This trend is also underscored in today’s US initial jobless claims figures rising 965K from 784K in the week before and significantly missing estimates. The recent Beige Book and payrolls report suggests that most of the increased layoffs are in the leisure and hospitality sector with the Northeast hit the hardest.