Tuesday Trends (8/3/21)

By Charlie Bilello

03 Aug 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 July, continuing the decade-long run of US outperformance.

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

Weakness out of China has led to a sharp rebound in US equity relative strength, with new highs reached in July (surpassing the prior high from May 2020).

c) US: Small vs. Large ($IWM/$SPY)

Small caps remain weak, giving back all of their relative gains since last November. The “reopening trade” has reversed course and there are now renewed fears of an economic impact from the Delta variant surge.

d) US: Growth vs. Value ($IWF/$IWD)

Growth names have staged an impressive rally over the last 2 months relative to value and are now close to even on the year. Fears of the Delta variant combined with lower bond yield has put pressure on value areas (Energy/Financials) while growth names have benefitted.

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

After underperforming from February through May, tech shares have rebounded nicely and are now even with the broad market on the year. The big 5 (Apple, Microsoft, Amazon, Google, and Facebook) all hit new all-time highs during July.

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

High momentum stocks remain week with new 52-week low relative to the broad market registered in July.

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

High beta names have pulled back after a strong run since last October. An overweight in Financials/Energy had been helping on the way up but are hurting during the recent decline.

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 few months, however, the ratio has gone sideways…

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

Banks are puling back relative to the market, mirroring the move down in Treasury yields and flattening of the yield curve. Much of their YTD outperformance has been given back.

2) Bonds

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

The ratio of TIPS to treasuries (which indicates rising inflation expectations) has gone sideways over the last 3 months after trending steadily higher for much of the past year.

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Overall inflation (CPI) is up 5% over the past year, the highest rate of increase since 2008. Core CPI (excludes food/energy) is up 4.5%, the highest increase since 1991.

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

High yield relative strength is pulling back a bit after new highs last month.

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

After hitting a new relative high in June, Leveraged Loans have moved back into a sideways pattern that they’ve been in since early January.

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

Strength in investment grade credit (spreads tightening) hit a new high in late June but has moderated.

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

Ratio of long duration ($TLT) to short duration ($SHV) is rebounding as long-term yields have fallen to their lowest levels since January.

30-Year and 10-Year Treasury Bond yields have move sharply lower in recent weeks, erasing much of the increase since the start of the year.

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

The Yield Curve has flattened significantly in recent months as long-term yields have fallen and short-term yields remain anchored to Fed policy.

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

Seeing some Emerging Market bond weakness of late after a strong run over the last 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 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 in the last few months we’ve seen a sharp reversal as the price of Lumber has declined 70%.

4) Currencies

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

The US Dollar is up on the year after trading lower in 2020.

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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 down on the year after rallying in 2020.

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

EM currencies are trading marginally lower this year against the Dollar.

5) Crypto

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

The ratio of Ethereum to Bitcoin hit its highest level since 2018 in May but has since pulled back during the recent crypto correction…

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b) Litecoin to Bitcoin ($LTC/$BTC)

Litecoin suffered a large decline during the recent Crypto correction, giving back its relative gains during an April/May surge.

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

The ratio of stocks to bonds hit another new high in July as equity gains continue.

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b) Stocks vs. Commodities ($SPY/$DBC)

Stocks have underperformed commodities so far this year with Crude Oil leading (+45% YTD).

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

After a sharp pullback from its April high, Bitcoin’s relative strength is bouncing again. It has outperformed stocks by a wide margin over the last year.

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

After a parabolic move higher to start the year, Bitcoin’s sharp correction over the last few months has led to a decline in its relative strength versus Gold.


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