Tuesday Trends (6/29/21)

By Charlie Bilello

29 Jun 2021


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The most important trends in markets and investing…

1) Equities

a) US vs. World ($SPY/$ACWX)

More than a decade long streak of US equity outperformance peaked last September. Since then US relative strength has gone sideways…

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

Emerging Markets had been underperforming US equities for more than a decade before bottoming last May on the relative basis. Over the past year the ratio has gone sideways with wide swings in both directions.

c) US: Small vs. Large ($IWM/$SPY)

Small caps are still outperforming by a wide margin over the last year but have lagged large caps over the last few months…

d) US: Growth vs. Value ($IWF/$IWD)

Growth stocks had been outperforming value stocks since 2006 but the ratio of growth to value peaked last September and has generally trended lower since. Over the past few weeks, however, we’ve seen a sharp rebound in growth names…

e) US: Tech vs. Broad Market ($XLK/$SPY)

2020 was one of the best years ever for Technology stocks, and 2-year Tech returns hit their highest level since 1998-1999. Over the last 12 months, however, the ratio of Tech to the broad market has gone sideways as we approach herd immunity and the reopening of the economy has begun.

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 since February we’ve seen a sharp reversal and the relative strength of high momentum hit a 52-week low in May.

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 last November, and has accelerated again early in the new year with additional stimulus measures in place.

What’s driving this increase? A sector overweight in Financials and Energy which have been the best performing sectors this year…

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

Discretionary stocks have widely 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 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 a sharp outperformance in Banks. In recent weeks, we’ve seen a slight move down with yields moving lower and the yield curve flattening.

2) Bonds

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

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

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Overall inflation (CPI) is up 5% over the past year, the highest rate of increase since 2008. Core CPI (excludes food/energy) is up 3.8%, the highest increase since 1992.

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

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

US High Yield credit spreads (3.04%) are at their tightest levels since July 2007 while absolute yields (4.04%) are at an all-time low.

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

Leveraged Loan relative strength is back at a 52-week high after trending sideways since January…

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

Strength in investment grade credit (spreads tightening) has been a consistent theme since the lows last March.

Current Investment Grade spreads (0.86%) are near their lowest levels in 16 years.

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 lower after peaking last August…

30-Year and 10-Year Treasury Bond yields have trended higher since hitting all-time lows 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 there’s been a pullback (long-term yields falling) in recent weeks…

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

Emerging Market bonds have posted sharp outperformance over the last 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…

b) Copper vs. Gold ($JJC/$GLD)

The ratio of Copper to Gold has moved sharply higher this year as optimism over more stimulus and an economic recovery continues…

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

Silver has bested Gold over the last year…

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

The US housing boom led to surging ratio of Lumber to Gold in 2020. That strength continued to start the year but in the last month we’ve seen a sharp reversal as the price of Lumber has been cut in half…

4) Currencies

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

The US Dollar is down over the past year but has gone sideways over the last 6 months…

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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 showing gains against the Dollar over the last year but lower over the last 6 months…

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

EM currencies are higher over the last year…

5) Crypto

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

The ratio of Ethereum to Bitcoin hit its highest level since 2018 in May but has since pulled back during the recent crypto correction…

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b) Litecoin to Bitcoin ($LTC/$BTC)

Litecoin suffered a large decline during the recent Crypto correction, giving back its relative gains during an April/May surge.

6) Intermarket

a) Stocks vs. Bonds ($SPY/$AGG)

The ratio of stocks to bonds has trended higher over the last year as bonds have sold off and stocks continue to hit new highs.

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With half the year to go, the S&P 500 has already hit 32 all-time highs in 2021.

b) Stocks vs. Commodities ($SPY/$DBC)

Stocks are underperforming commodities over the last year as a more inflationary environment takes hold…

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

Bitcoin has outpaced stocks by a wide margin over the last 12 months, but its recent 55% correction has given back all of its relative strength since the start of the year…

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

After a parabolic move higher to start the year, Bitcoin’s sharp correction in the last few months has led to a decline in its relative strength versus Gold.

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About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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