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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.
b) Emerging Markets vs. US ($IEMG/$SPY)
Emerging Markets have been pulling back relative to US equities over the last few months after a run of outperformance that start in May 2020.
c) US: Small vs. Large ($IWM/$SPY)
Small caps are still outperforming by a wide margin over the last year but have lagged large caps over the last 2 months…
d) US: Growth vs. Value ($IWF/$IWD)
Growth stocks had been outperforming value stocks since 2006 but the ratio of growth to value peaked last September and is nearing a 11-month low today…
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 12 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 since February we’ve seen a sharp reversal and the relative strength of high momentum names is now at a 52-week low (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 Financials and Energy 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. Over the past few weeks, however, we’ve seen a reversal…
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.
The 5-Year Breakeven inflation rate has surged to its highest level since 2008 (2.71%)…
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 (3.26%) are near their lowest levels of the past 10 years while absolute yields (4.20%) 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 (0.93%) 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 hitting all-time lows 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…
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…
The price of Copper is at its highest level ever…
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…
Lumber prices have more than quadrupled over the last 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 ($UUP)
The US Dollar has trended lower of the past year…
b) Japanese Yen vs. US Dollar ($FXY)
The Yen has shown sharp relative weakness since early January…
c) Euro vs. US Dollar ($FXE)
The Euro is showing gains against the Dollar over the last year…
d) Emerging Market Currencies vs. US Dollar ($CEW)
EM currencies have rallied over the last year…
5) Crypto
a) Ethereum vs. Bitcoin ($ETH/$BTC)
The ratio of Ethereum to Bitcoin is at its highest levels since the summer of 2018…
b) Litecoin to Bitcoin ($LTC/$BTC)
Litecoin has surged higher over the past month leading to new 52-week highs in its relative strength…
Bitcoin has been lagging smaller coins this year…
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…
The S&P 500 has already hit 26 new all-time highs this year, following 33 in 2020.
b) Stocks vs. Commodities ($SPY/$DBC)
Stocks are underperforming commodities over the last year as a more inflationary environment takes hold…
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/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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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.
