Tuesday Trends (1/12/21)

By Charlie Bilello

12 Jan 2021


The most important trends in markets and investing…

1) Equities

a) US vs. World ($SPY/$ACWX)

US stocks have been outperforming international equities for over 10 years. In early September, this ratio peaked and started trending lower and last week it hit a 9-month low…

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

US Stocks outperformed Emerging Markets until last May after which EM has taken a leadership role. Last week, EM stocks had their highest relative strength vs. US since last January.

c) US: Large vs. Small ($SPY/$IWM)

After many years of outperformance, large caps have lagged small caps of late. While the ratio of large to small actually peaked near the lows last March, the reversal accelerated with news of the vaccines in November. It is currently at a 22-month low.

d) US: Growth vs. Value ($IWF/$IWD)

Growth stocks have been outperforming value stocks since 2006. The ratio peaked last September and has been trending lower since…

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 6 months, however, the ratio has gone sideways 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 has continued thus far in 2021…

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 came after the vaccine news in November and continues to start the year…

h) US: Consumer Discretionary vs. Consumer Staples ($XLY/$XLP)

Another round of massive stimulus has investors expecting another increase in discretionary spending with the ratio of discretionary to staples at a new high…

2) Bonds

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

Inflation expectations continue to rise. After collapsing in March, the ratio of TIPS to treasuries has trended steadily higher.

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5-Year Breakeven inflation rate is at its highest level since July 2018…

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

High yield maintaining its strength versus treasuries of similar duration (spreads narrowing).

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

Leveraged Loan spreads continue to tighten…

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

Strength in investment grade credit has been a consistent theme but we’re seeing a slight downward move to start the year.

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

As longer-term interest rates are starting to creep higher (with inflation expectations rising), the ratio of long duration to short duration bonds has moved down to its lowest levels since last March…

30-Year Treasury Bond yield at highest levels since last February…

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…

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

Emerging Market bonds were outperformers for months after the lows last March, showing some signs of stalling here…

3) Commodities

a) Gold vs. Broad Commodities ($GLD/$DBC)

Gold was the commodity leader during the February/March crash but has since trended lower as the economy has recovered.

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b) Copper vs. Gold ($GLD/$JJC)

The ratio of Copper to Gold hit a 52-week highs as optimism over stimulus and a recovery continues…

c) Gold vs. Silver ($GLD/$SLV)

After a sharp reversal in March, Silver has bested Gold for much of the past 9 months…

d) Lumber vs. Gold ($LUMBER/$GOLD)

The unexpected US housing boom was accompanied by a surging ratio of Lumber to Gold in 2020. Some minor weakness over the past few weeks…

4) Currencies

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

US Dollar continues to trend lower as the US national debt is set to spike higher once again (passage of $900 billion stimulus bill and $740 billion defense spending bill) and the Fed continues to buy assets at an unrelenting pace ($120 billion per month).

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

Trending higher with some weakness to start the year…

c) Euro vs. US Dollar ($FXE)

Trending higher with some weakness to start the year…

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

EM Currencies collapsed during the covid crash but have since recovered all of their losses. Some weakness here to start the year…

5) Crypto

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

Ratio of Bitcoin to Ethereum moving lower to start the year as Ethereum has outperformed…

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

Bitcoin outperforming Litecoin during the recent pullback in crypto…

c) Bitcoin vs. XRP ($BTC/$XRP)

Bitcoin’s strength relative to XRP is evident on this chart, particularly since last November…

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

Ratio of stocks to bonds at a new high to start the year…

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b) Stocks vs. Commodities ($SPY/$DBC)

After a surge higher in March in April as Oil collapsed, the ratio of stocks to commodities has largely traded sideways since. To start the new year, the ratio has moved lower as Crude Oil has moved sharply higher (above $50/barrel for first time since last February)…

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

Recent pullback in Bitcoin evident here (27% peak-to-trough) but outperformance over last year is stunning…

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

There’s a new gold in town…

e) Bitcoin vs. US Dollar Index ($BTC/$UUP)

Just for laughs…

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About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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