Tuesday Trends (9/7/21)

By Charlie Bilello

07 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 few weeks we’ve seen a slight pullback as international stocks have rallied.

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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 for US equities. In the past few weeks we’ve seen a slight reversal as EM equities (including China) have rebounded.

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 3 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.

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 few 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 in August.

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Overall inflation (CPI) is up 5.4% over the past year, the highest rate of increase since 2008. Core CPI (excludes food/energy) is up 4.2%. Both are proving to be less transitory than expected by the Fed.

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

High yield relative strength hit new highs again last week with credit spreads tightening and yields falling.

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) hit a new high in late June but has since moderated a bit.

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

Ratio of long duration ($TLT) to short duration ($SHV) is starting to turn down again after a sharp rally from March through July as yields fell.

30-Year and 10-Year Treasury Bond yields moved sharply lower after peaking in March but are now showing signs of a bottom.

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

The Yield Curve flattened significantly after peaking in March as long-term yields fell sharply and short-term yields remain anchored to Fed policy. In recent weeks, the curve has started to steepen again.

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

The Emerging Market bond weakness did not last very long, with a sharp reversal higher in recent weeks.

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)

The ratio of Ethereum to Bitcoin is rallying again…

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

Solana has gone parabolic and its outperformance versus Bitcoin has as well.

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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The S&P 500 has now it 54 all-time highs in 2021, on pace to break the record from 1995.

b) Stocks vs. Commodities ($SPY/$DBC)

Stocks have underperformed commodities so far this year with Crude Oil leading (+41% YTD). The underperformance has narrowed since May.

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

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

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

Bitcoin has crushed Gold since the start of the pandemic.


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