Tuesday Trends (1/5/21)

By Charlie Bilello

05 Jan 2021

The most important trends in markets and investing…

1) Equities

a) US vs. World ($SPY/$ACWX)

US stocks have been outperforming international equities for over 10 years. In early September, this ratio peaked and started trending lower and this week it hit a 9-month low…

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b) US vs. Emerging Markets ($SPY/$VWO)

US Stocks outperformed Emerging Markets until last May after which EM has taken a leadership role. This week, EM stocks had their highest relative strength vs. US since last January.

c) US: Large vs. Small ($SPY/$IWM)

After many years of outperformance, large caps have lagged small caps of late. While the ratio of large to small actually peaked near the lows in March, the reversal accelerated with news of the vaccines in November.

d) US: Growth vs. Value ($IWF/$IWD)

Growth stocks have been outperforming value stocks since 2006. The ratio peaked in early September, but growth stocks still have a large outperformance over the last year.

e) US: Tech vs. Broad Market ($XLK/$SPY)

2020 was one of the best years ever for Technology stocks, and 2-year returns have not been this high since 1998-1999.

f) US: Momentum vs. Broad Market ($MTUM/$SPY)

High momentum stocks had a very strong run of outperformance in 2020.

g) US: High Beta vs. Low Vol ($SPHB/$SPLV)

After many years of underperformance, High Beta stocks outperformed Low Volatility names in 2020 by a wide margin. The recent surge higher came after the vaccine news in November…

h) US: Consumer Discretionary vs. Consumer Staples ($XLY/$XLP)

Another round of massive stimulus has investors expecting another increase in discretionary spending with the ratio of discretionary to staples at a new high…

2) Bonds

a) TIPS vs. Treasuries – Inflation ($TIP/$IEF)

Inflation expectations continue to rise. After collapsing in March, the ratio of TIPS to treasuries has trended steadily higher.

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5-Year Breakeven inflation rate is at its highest level since October 2018…

b) High Yield vs. Treasuries ($HYG/$IEI)

High yield maintaining its strength versus treasuries of similar duration (spreads narrowing).

c) Leveraged Loans vs. Treasuries ($BKLN/$SHY)

Leveraged Loan spreads continue to tighten…

d) Investment Grade vs. Treasuries ($LQD/$SHY)

Strength in investment grade credit has been a consistent theme but slight downward move to start the year.

e) Long Duration vs. Short Duration ($TLT/$SHV)

As longer-term interest rates are starting to creep higher (with inflation expectations), the ratio of long duration to short duration bonds is moving lower…

f) US Yield Curve (10-year minus 2-year)

After inverting in 2019, the Yield Curve steepened in 2020 with short rates plummeting (Fed cuts to 0% with promises to keep them there) and long rates slowly moving higher…

g) Emerging Market Bonds vs. Treasuries ($EMB/$IEF)

Emerging Market bonds continue to trend higher after collapsing in March…

3) Commodities

a) Gold vs. Broad Commodities ($GLD/$DBC)

Gold was the commodity leader during the February/March crash but has since trended lower.

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b) Copper vs. Gold ($GLD/$JJC)

After a surge higher on vaccine news, the ratio of Copper to Gold showing some minor weakness of late…

c) Gold vs. Silver ($GLD/$SLV)

After a sharp reversal in March, Silver bested Gold in 2020…

d) Lumber vs. Gold ($LUMBER/$GOLD)

The US housing boom was accompanied by a surging ratio of Lumber to Gold in 2020. Some minor weakness to start the year…

4) Currencies

a) US Dollar vs. Major World Currencies ($UUP)

US Dollar continues to trend lower as the US national debt is set to spike higher once again (passage of $900 billion stimulus bill and $740 billion defense spending bill) and the Fed continues to buy assets at an unrelenting pace ($120 billion per month).

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b) Japanese Yen vs. US Dollar ($FXY)

Trending higher…

c) Euro vs. US Dollar ($FXE)

Highest level in over 2 years…

d) Emerging Market Currencies vs. US Dollar ($CEW)

EM Currencies collapsed during the covid crash but have since recovered all of their losses.

5) Crypto

a) Bitcoin vs. Ethereum ($BTC/$ETH)

Bitcoin at new all-time highs but ratio to Ethereum moving sharply lower as Ethereum spiked higher to start the year…

b) Bitcoin vs. Litecoin ($BTC/$LTC)

Litecoin has had a strong run of late relative to Bitcoin…

c) Bitcoin vs. XRP ($BTC/$XRP)

This chart is bananas due to the extreme volatility in XRP (most recently, to the downside while Bitcoin has gone vertical).

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

Pace of stock outperformance vs. bonds has slowed in the last month…

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b) Stocks vs. Commodities ($SPY/$DBC)

After a surge higher in March in April as Oil collapsed, the ratio of stocks to commodities has traded sideways since. To start the new year, the ratio has moved lower as Oil has ramped higher, approaching $50/barrel.

c) Bitcoin vs. Stocks ($BTC/$SPY)

The Fed continues to do its thing (buy assets, suppress interest rates). The US Government continues to do its thing (borrow and spend). Bitcoin continues to do its thing…

d) Bitcoin vs. Gold ($BTC/$GLD)

There’s a new gold in town…

e) Bitcoin vs. US Dollar Index ($BTC/$UUP)

Just for laughs…


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