Tuesday Trends (3/30/21)

By Charlie Bilello

30 Mar 2021

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The most important trends in markets and investing…

1) Equities

a) US vs. World ($SPY/$ACWX)

US stocks have been outperforming of late after a relative decline from last September through mid-January. The new narrative: trillions in new economic stimulus is said to disproportionately help US businesses.

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

Emerging Markets have been pulling back relative to US equities after a run of outperformance that start last May.

c) US: Small vs. Large ($IWM/$SPY)

After many years of outperformance, large caps have lagged small caps by a wide margin over the last year. While the ratio of small to large actually bottomed near the lows last March, the reversal accelerated with news of the vaccines last November. The prevailing narrative is that the stimulus coupled with the reopening of the economy are highly bullish factors for small cap stocks. In recent weeks, we’ve seen a bit of a reversal with small caps pulling back…

d) US: Growth vs. Value ($IWF/$IWD)

Growth stocks have been outperforming value stocks since 2006. That ratio of growth to value peaked last September and hit an 8-month low in early March…

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

2020 was one of the best years ever for Technology stocks, and 2-year returns hit their highest level since 1998-1999. Over the last 8 months, however, the ratio has gone sideways and tech is undeforming this year as investors look ahead to the reopening of the economy post-covid…

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

High momentum stocks had a very strong run of outperformance in 2020 and that strength continued to start 2021 but has sharply reversed course over the past month and a half (see here for a recent post on the momentum reversal).

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 started after the vaccine news in November, and has accelerated again in the new year with additional stimulus measures in place.

What’s driving this increase? A sector overweight in Energy and Financials which have been outperforming of late…

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

Discretionary stocks hit new relative highs with the stimulus measures at the start of the year but have since pulled back and are now roughly even with Staples in 2021.

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

Banks had been underperforming the market for many years, with the ratio bottoming last September. Since then optimism over rising rates, an economic recovery, and a steepening yield curve have lead to Banks sharply outperforming…

2) Bonds

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

After collapsing last March, the ratio of TIPS to treasuries (which indicates rising inflation expectations) has trended steadily higher.

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The 5-Year Breakeven inflation rate recently hit its highest level since 2008 (2.59%)…

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

High yield strength versus treasuries (credit spreads tightening) has been persistent since the lows last March…

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

Leveraged Loan strength from the lows last March is also evident though relative strength has gone sideways to start the year…

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

Strength in investment grade credit (spreads tightening) has been a consistent theme since the lows last March but we’re seeing a sideways move to start the year.

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

With the rise in long-term interest rates, the ratio of long duration to short duration bonds has moved down after peaking last August. Now at lowest levels in over a year…

30-Year and 10-Year Treasury Bond yields have trended higher since bottoming last March. At 2.40%, the 30-year yield is back to pre-covid levels and the 10-year (1.73%) is not far behind.

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. That trend has continued to start the year with the Yield Curve at its steepest level since last 2015…

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

Emerging Market bonds were outperformers for months after the lows last March but are showing some signs of stalling here to start the year…

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 this year as optimism over more stimulus and an economic recovery continues…

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

After a sharp reversal last March, Silver has bested Gold over the last year but is showing some signs of weakness over the last month…

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

The unexpected US housing boom was accompanied by a surging ratio of Lumber to Gold in 2020. That strength has only continued to start the year…

4) Currencies

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

The US Dollar is mounting a bit of a comeback from its lowest in early January…

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

The Yen is showing sharp relative weakness since early January, now at a 52-week low against the Dollar…

c) Euro vs. US Dollar ($FXE)

Euro moving lower to start the year…

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

EM Currencies showing some weakness of late, mirroring the relative decline in EM equities…

5) Crypto

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

Ratio of Bitcoin to Ethereum hit a 52-week low in early February as Ethereum’s gains outpaced Bitcoin. That has reversed a bit since with Bitcoin regaining some relative strength…

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

Bitcoin has outpaced Litecoin over the last year with new relative highs this week…

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

Ratio of stocks to bonds continues to hit new highs as bonds have moved lower while stocks continue to trend higher…

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b) Stocks vs. Commodities ($SPY/$DBC)

After a surge higher in last April as Oil collapsed, the ratio of stocks to commodities has largely traded sideways until early this year when the ratio broke lower. In the few weeks, stocks have bounded a bit as Crude Oil corrected while the S&P 500 continued to hit new highs.

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

Bitcoin has outpaced stocks by a wide margin over the last year…

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

Investors seem to be favoring Bitcoin as a hedge against higher inflation and currency debasement…

Related Reads:

The 2 Most Powerful Forces in Markets

The Great Reversal in Secular Trends


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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.

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