Tuesday Trends (4/20/21)

By Charlie Bilello

20 Apr 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 over the last 3 months 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 over the last 2 months 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. Over the last month, we’ve seen a bit of a reversal with small caps underperforming…

d) US: Growth vs. Value ($IWF/$IWD)

Growth stocks have been outperforming value stocks since 2006 but the 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 sharply reversed course in February (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 have widely outperformed Staples over the last year on the stimulus measures and increase in consumer spending.

US Retail Sales surged to new highs once again in March and are now 14% above pre-covid levels.

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%)…

Reported inflation (CPI) is up 2.6% over the past year and is expected to continue to increase in the coming months. (See our recent post on inflationary trends here).

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

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

US High Yield credit spreads (3.22%) are nearing their lowest levels of the past 10 years while absolute yields (4.16%) remain near all-time lows.

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

Leveraged Loan strength from the lows in 2020 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.

Current Investment Grade spreads (0.94%) are near their lowest levels of the past 10 years.

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 lower after peaking last August…

30-Year and 10-Year Treasury Bond yields have trended higher since bottoming last March.

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 hitting its steepest level since 2015…

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

Emerging Market bonds have posted sharp outperformance over the last year with new relative highs this week…

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…

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…

US Housing Starts have spiked to their highest levels since 2006 as demand for new homes is greatly exceeding supply.

4) Currencies

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

The US Dollar has trended lower of the past year…

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

The Yen has shown sharp relative weakness since early January with a snapback over the last few weeks…

c) Euro vs. US Dollar ($FXE)

The Euro is down to start 2021 but still showing gains over the last year…

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

While still up sharply over the last year, EM Currencies are showing some minor weakness of late, mirroring the relative decline in EM equities…

5) Crypto

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

The ratio of Bitcoin to Ethereum hit a 52-week low in early February as Ethereum’s gains have outpaced Bitcoin.

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

Litecoin has surged higher over the past month leading to a decline in Bitcoin’s relative strength.

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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The S&P 500 has already hit 23 new all-time highs this year, following 33 in 2020.

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 last month, stocks have bounced on a relative basis.

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

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

The rise in Bitcoin has been relentless…

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

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

Related Reads/Videos:

The 2 Most Powerful Forces in Markets

The Great Reversal in Secular Trends

Video: 6 Long-Term Market Trends Showing Signs of Reversal


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