Tuesday Trends (11/2/21)

By Charlie Bilello

02 Nov 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 is at new highs. The S&P 500 has gained 25% in 2021 versus 9% for the world ex US ($ACWX).

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

US equities have widely outperformed Emerging Markets this year (+25% vs. +1%) with new relative highs again to start the month.

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 months we’ve seen small caps show a slight improvement as well.

d) US: Growth vs. Value ($IWF/$IWD)

The ratio of growth to value has closely followed the direction of covid-19 for most of 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 September, as covid started to move down, value stocks led. But over the past month we’ve seen growth lead even as covid has continued to decline.

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 until recently where Tech has outperformed in spite of covid moving down.

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 by a wide margin (+42% vs. +15% for low vol) 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 this year (+27% vs. +8%) on the stimulus measures and a sharp increase in consumer spending. The ratio is at new highs…

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 months, Banks have outperformed again, coinciding with a move higher in yields.

2) Bonds

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

The ratio of TIPS to treasuries (which mirrors inflation expectations) hit new 52-week highs last week as inflation expectations continue to rise.

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Market-based inflation expectations hit their highest level ever in October (note: data goes back to 2003).

PCE inflation is up 4.4% over the last year, its highest rate of increase in 30 years…

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

High yield relative strength hit new highs again in October.

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

Leveraged Loan relative strength remains strong…

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

Investment grade bonds continue to outperform treasuries…

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

Ratio of long duration ($TLT) to short duration ($SHV) has moved lower this year with the rise in long-term yields.

30-Year and 10-Year Treasury Bond yields are off their highs from earlier in the year but above their summer lows. Market participants will be watching closely to their reaction after the Fed starts tapering their purchases.

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

The Yield Curve is steeper on the year with 10-year yields rising more than 2-year yields. However, in recent months the short end (2-year) is starting to rise as well as the market starts to price in rate hikes beginning in June 2022.

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 six months as emerging market equities have weakened significantly.

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 and the economic recovery. Over the past six 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 Lumber has weakened significantly after peaking 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 asset purchases by year-end and the first rate hike will come by the middle 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 near 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 over the last year…

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

Solana went parabolic starting August and its outperformance versus Bitcoin did as well. Bitcoin has outperformed after that, hitting new all-time highs for the first time since April, but Solana is surging once again…

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

The ratio of stocks to bonds is at new highs again with the S&P 500 up 25% year-to-date versus a 1.5% loss in bonds.

The S&P 500 has hit 61 all-time highs this year.

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 has outperformed stocks by a wide margin over the last year but its relative strength actually peaked back in March.

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

Bitcoin has crushed Gold since the start of the pandemic, hitting new relative highs again in October. Bitcoin has more than doubled this year versus a 6% decline in Gold.


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