Tuesday Trends (2/23/21)

By Charlie Bilello

23 Feb 2021


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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. Last September, this ratio peaked and we’ve seen international outperformance since…

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

US Stocks have outperformed Emerging Markets for many years, with the ratio peaking last May. Since then EM has taken on a leadership role, with its relative strength hitting a 52-week high this month…

c) US: Small vs. Large ($IWM/$SPY)

After many years of outperformance, large caps have lagged small caps by a wide margin over the last 11 months. While the ratio of small to large actually bottomed near the lows last March, the reversal accelerated with news of the vaccines last November. The prevailing narrative is that the stimulus coupled with the reopening of the economy are highly bullish factors for small cap stocks…

d) US: Growth vs. Value ($IWF/$IWD)

Growth stocks have been outperforming value stocks since 2006. The ratio peaked last September and are now at an 8-month low…

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 continued to start 2021 but has sharply reversed course over the past week…

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 started after the vaccine news in November, and has accelerated again in the new year with additional stimulus measures in place.

What’s driving this increase? A sector overweight in Energy and Financials which have been outperforming of late…

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 hitting a new high to start the year…

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

Banks had been underperforming the market for many years, with the ratio bottoming last September. Since then optimism over rising rates, an economic recovery, and a steepening yield curve have lead to Banks sharply outperforming…

2) Bonds

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

After collapsing in March, the ratio of TIPS to treasuries (which indicates rising inflation expectations) has trended steadily higher.

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The 5-Year Breakeven inflation rate recently hit its highest level since 2012 (2.37%)…

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

High yield strength versus treasuries (credit spreads tightening) has been persistent since the lows last March…

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

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

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

Strength in investment grade credit has been a consistent theme since the lows last March 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. Now at lowest levels in over a year…

30-Year and 10-Year Treasury Bond yields have trended higher since bottoming last March. At 2.18%, the 30-year yield is back to pre-covid levels.

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 with the Yield Curve at its steepest level since early 2017…

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

Emerging Market bonds were outperformers for months after the lows last March but are showing some signs of weakness here to start the 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 ($GLD/$JJC)

The ratio of Copper to Gold surging higher this month as optimism over more stimulus and an economic recovery continues…

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

After a sharp reversal in March, Silver has bested Gold over the last year with new relative highs this week…

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 only continued to start the year…

4) Currencies

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

US Dollar has trended lower since last March…

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

The Yen is showing relative weakness to start the year, a reversal of the trend since last March…

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. Trading sideways to start the year…

5) Crypto

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

Ratio of Bitcoin to Ethereum hit a 52-week low a few weeks ago as Ethereum’s gains outpaced Bitcoin. That has reversed a bit since…

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

Bitcoin has outpaced Litecoin over the last year but the trend is less clear over the last 6 months as Litecoin has held its own…

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

Ratio of stocks to bonds at a new high to start the year as bonds have moved lower while stocks continue to trend higher…

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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 to the lowest levels since last April as Crude Oil has moved sharply higher (now above $61/barrel) along with other commodities…

The CRB Commodity Index is now at a 2-year high, up 90% from its low last April.

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

After a short-lived correction, Bitcoin has roared back to new highs, outpacing stocks by a wide margin this year…

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

Investors seem to be favoring Bitcoin as a hedge against higher inflation and currency debasement…

Related Read: When Secular Trends Reverse

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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.

About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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