Tuesday Trends (9/21/21)

By Charlie Bilello

21 Sep 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 August, continuing the decade-long run of US outperformance. In the past month we’ve seen a slight pullback as international stocks posted better relative performance.

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

Sharp weakness out of China, the largest weighting within EM, led to new relative strength highs for US equities in August. In the past month we’ve seen a slight reversal as EM has outperformed.

c) US: Small vs. Large ($IWM/$SPY)

Small caps remain weak, giving back all of their relative gains since last November. Fears of an economic slowdown from the Delta variant accelerated relative declines in July and August.

d) US: Growth vs. Value ($IWF/$IWD)

Growth names have staged an impressive rally over the last 4 months relative to value and are now outperforming on the year. Fears over 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 sharply and are now ahead of the broad market on the year.

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

High momentum stocks remain weak relative to the broad market since crashing in February.

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

High beta names have outperformed this year but all of that outperformance came in the first few months.

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 8 months, however, the ratio has gone sideways…

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

Banks have been pulling 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 over the past few months.

2) Bonds

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

The ratio of TIPS to treasuries (which mirrors inflation expectations) hit new highs this month.

Overall inflation (CPI) is up 5.3% over the past year and Core CPI (excludes food/energy) is up 4.2%. Both are proving to be less transitory than expected by the Fed.

Core PCE (the Fed’s preferred inflation measure) is up 3.6% over the last year, its highest rate of increase since 1991.

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

High yield relative strength hit new highs again this month with credit spreads tightening and yields falling back below 4%.

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

Leveraged Loan relative strength continues to rise, and now has almost fully recovered from the pandemic crash last year.

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

Strength in investment grade credit (spreads tightening) continues with a new relative high this month.

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

Ratio of long duration ($TLT) to short duration ($SHV) has been rebounding since March as yields have fallen.

30-Year and 10-Year Treasury Bond yields are down sharply from their highs earlier in the year…

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

The Yield Curve has flattened after peaking in March as long-term yields fell sharply and short-term yields remain anchored to Fed policy.

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 few months.

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 declined over 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)

Ethereum has outperformed Bitcoin by a wide margin this year…

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

Solana went parabolic starting August and its outperformance versus Bitcoin did as well. Over the 2 weeks, though, we’re seeing a pullback during the broad crypto correction.

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

The ratio of stocks to bonds is pulling back from record highs earlier in the month as stocks have corrected (5% pullback in the S&P 500) while bonds have held up.

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This is the 2nd 5% correction of the year for the S&P 500…

b) Stocks vs. Commodities ($SPY/$DBC)

Stocks have underperformed commodities this year as an inflationary environment has taken hold.

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

Bitcoin’s as outperformed stocks by a wide margin over the last year but its relative strength peaked back in March.

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

Bitcoin has crushed Gold since the start of the pandemic.


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