Tuesday Trends (2/9/21)

By Charlie Bilello

09 Feb 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 have outperformed Emerging Markets for many years, with the ratio peaking last May. Since then EM has taken a leadership role with its relative strength near a 52-week high…

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 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 has been moving sideways 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…

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

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

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…

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 sideways 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…

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 but still trending higher…

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 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 over the last 11 months with new relative highs in the last 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 continued to start the year…

4) Currencies

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

US Dollar has trended lower since last March with a little bit of a reversal over the past few weeks…

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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 minor weakness here to start the year…

5) Crypto

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

Ratio of Bitcoin to Ethereum hit a 52-week low last week as Ethereum’s gains outpaced Bitcoin. That has reversed a bit since with Bitcoin surging back to new highs…

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

Bitcoin has outpaced Litecoin over the last year…

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 and 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 $57/barrel)…

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

After a correction, Bitcoin has roared back to new highs, outpacing stocks by a wide margin…

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

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

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About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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