Tuesday Trends (1/26/21)

By Charlie Bilello

26 Jan 2021


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…

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

US Stocks outperformed Emerging Markets for years, with the ratio peaking last May. Since then EM has taken a leadership role hit its highest relative strength 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.

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 sideways to down 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…

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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The 5-Year Breakeven inflation rate is at its highest level since 2013…

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

High yield strength versus treasuries (credit spreads narrowing) has been persistent since the lows last March, but moving sideways of late…

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

Leveraged Loan strength also evident though pace of gains has slowed…

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)

With the rise in long-term interest rates, the ratio of long duration to short duration bonds has moved down after peaking last August…

30-Year Treasury Bond yields have trended higher since bottoming 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, but moderating of late…

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 this month 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. That strength has continued to start the year…

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, $740 billion defense spending bill, and talk of another $1 trillion+ 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 at 52-week lows at Bitcoin corrects while Ethereum has hit new highs…

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

Bitcoin has outpaced Litecoin over the last year…

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 last 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 (31% peak-to-trough) but outperformance over last year is stunning…

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

Bitcoin’s volatility dominates this chart…

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About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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