Tuesday Trends (10/5/21)

By Charlie Bilello

05 Oct 2021

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The most important trends in markets and investing…

1) Equities

a) US vs. World ($SPY/$ACWX)

US equity relative strength hit a new high in August, continuing the decade-long run of US outperformance. The S&P 500 has gained 17% in 2021 versus 5% for the world ex US ($ACWX).

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

Sharp weakness out of China, the largest weighting within EM, led to new relative strength highs for US equities in August. Emerging Markets ($EEM) are down 3% year-to-date versus a 17% gain for US equities.

c) US: Small vs. Large ($IWM/$SPY)

Small caps relative strength peaked back in March and its declines accelerated with the rise of the covid-19 Delta variant over the summer. As the Delta has improved in recent weeks, we’ve seen small caps show an improvement as well.

d) US: Growth vs. Value ($IWF/$IWD)

The ratio of growth to value has closely followed the direction of covid-19 this year. As covid cases turned down in January, value stocks outperformed growth. When the Delta variant picked up over the summer, growth stocks outperformed value. In recent weeks, as covid has once again moved lower, value stocks have regained a leadership role.

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

After sharp outperformance in 2019 and 2020, Tech stocks are in line with the market this year. Similar to growth, Tech relative strength has mirrored the direction of covid with the recent downturn leading to a decline in its relative strength.

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

High momentum stocks crashed in February and early March and have since traded in a sideways range.

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

High beta names have outperformed in 2021 but all of that outperformance came in the first few months of the year.

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

Discretionary stocks have outperformed Staples over the last year on the stimulus measures and an increase in consumer spending. Over the past 8 months, however, the ratio has gone sideways…

i) US: Banks vs. Broad Market ($KBE/$SPY)

Relative strength in banks peaked back in March when 10-year yield peaked and bottomed in August with the bottom in yields. In recent weeks, Banks have shown sharp outperformance coinciding with a move higher in yields once more.

2) Bonds

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

The ratio of TIPS to treasuries (which mirrors inflation expectations) hit new highs this month.

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Overall inflation (CPI) is up 5.3% over the past year and Core CPI (excludes food/energy) is up 4.2%. Both are proving to be less transitory than expected by the Fed.

PCE inflation is up 4.3% over the last year, its highest rate of increase since 1990.

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

High yield relative strength hit new highs in September and have held up very well thus far during the recent equity market correction (S&P -6% from its peak).

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

Leveraged Loan relative strength remains strong and similar to junk bonds have held up well during the recent stock market correction.

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

Investment grade bonds hit new relative highs in September.

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

Ratio of long duration ($TLT) to short duration ($SHV) is moving lower again with the move up on long-term yields.

30-Year and 10-Year Treasury Bond yields are moving higher after a steady decline form March through July.

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

The Yield Curve is steepening once again as long rates move higher…

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

Emerging Market bonds have outperformed over the last year but relative strength has gone sideways over the last few months and lower in the past few weeks.

3) Commodities

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

Gold was the commodity leader during the February/March crash last year but has since trended steadily lower as the economy has recovered…

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b) Copper vs. Gold ($JJC/$GLD)

The ratio of Copper to Gold has moved sharply higher over the last year with optimism over stimulus the economic recovery. In recent months, though, the ratio has gone sideways.

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

Silver’s relative strength has been declining since February. Prior to that it had been outperforming Gold since the lows in March 2020.

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

The US housing boom led to record demand and a surging ratio of Lumber to Gold in 2020. That strength continued to start the year but a peak in the ratio in May.

4) Currencies

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

The US Dollar has been strengthening with the expectation that the Fed will start tapering by year-end and the first rate hike will come by the end of 2022. Meanwhile, the ECB (Euro) and BOJ (Yen) are expected to keep rates at negative levels indefinitely.

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

The Yen has shown sharp relative weakness since early January and recently hit a 52-week low…

c) Euro vs. US Dollar ($FXE)

The Euro is at a 52-week low against the US Dollar.

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

EM currencies are lower on the year, coinciding with weakness in EM equities.

5) Crypto

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

Ethereum has outperformed Bitcoin by a wide margin this year…

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b) Solana vs. Bitcoin ($SOL/$BTC)

Solana went parabolic starting August and its outperformance versus Bitcoin did as well. Over the last month, though, we’ve seen a pullback as Solana has corrected.

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

The ratio of stocks to bonds is pulling back from record highs in September as stocks have corrected (6% pullback in the S&P 500).

This is the 2nd 5% correction of the year for the S&P 500…


b) Stocks vs. Commodities ($SPY/$DBC)

Stocks have underperformed commodities over the last year as an inflationary environment has taken hold.

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

Bitcoin’s as outperformed stocks by a wide margin over the last year but its relative strength peaked back in March.

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

Bitcoin has crushed Gold since the start of the pandemic.


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