Tuesday Trends (7/20/21)

By Charlie Bilello

20 Jul 2021


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The most important trends in markets and investing…

1) Equities

a) US vs. World ($SPY/$ACWX)

A new high in US equity relative strength was reached this week. Over the last 10 years, US stocks are up 297% versus a gain of only 69% for Global (ex-us) equities.

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

New 52-week high in US stocks versus Emerging Markets. EM had been outperforming since last May but that trend reversed course in February, with weakness in China serving as a major catalyst.

c) US: Small vs. Large ($IWM/$SPY)

Small caps continue to weaken, giving back all of their relative strength since last November. The narrative of smaller companies disproportionately benefitting from US stimulus efforts is fading.

d) US: Growth vs. Value ($IWF/$IWD)

Growth names have staged an impressive rally over the last 2 months relative to value and are now close to even on the year. Fears of the Delta variant combined with lower bond yield has put pressure of value areas (Energy/Financials) while growth names have benefitted.

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

After underperforming from February through May, tech shares have rebounded nicely and are now even with the broad market on the year. The big 5 (Apple, Microsoft, Amazon, Google, and Facebook) all hit new all-time highs during the recent rally.

f) US: Momentum vs. Broad Market ($MTUM/$SPY)

High momentum stocks remain week, new 52-week low relative to the broad market.

g) US: High Beta vs. Low Vol ($SPHB/$SPLV)

High beta names are pulling back after a strong run since last October. An overweight in Financials/Energy had been helping on the way up but are hurting during the recent decline.

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

Discretionary stocks have 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 are puling back relative to the market, mirroring the move down in Treasury yields and flattening of the yield curve. Much of the YTD outperformance has been given back.

2) Bonds

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

The ratio of TIPS to treasuries (which indicates rising inflation expectations) has gone sideways over the last 3 months after trending steadily higher for much of the past year.

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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 4.5%, the highest increase since 1991.

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

High yield relative strength is pulling back a bit after new highs early in the month.

US High Yield credit spreads recently hit their tightest levels since July 2007 (3.02%) while absolute yields hit an all-time low (3.92%).

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

After hitting a new relative high in June, Leveraged Loans have moved back into a sideways pattern that they’ve been in since early January.

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

Strength in investment grade credit (spreads tightening) hit a new high in last June but has moderated during the recent market pullback.

Investment Grade spreads (0.86%) recently hit their tightest levels in 16 years.

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

Ratio of long duration ($TLT) to short duration ($SHV) is rebounding as long-term yields have fallen to their lowest levels since January.

30-Year and 10-Year Treasury Bond yields have move sharply lower in recent weeks, erasing much of the increase since the start of the year.

f) US Yield Curve (10-year minus 2-year)

The Yield Curve is back below 1% for the first time since January as long-term yields have fallen and short-term yields remain anchored with 0% Fed policy.

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

Some Emerging Market bond weakness of late after a strong run 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…

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b) Copper vs. Gold ($JJC/$GLD)

The ratio of Copper to Gold has moved sharply higher over the last year with optimism over stimulus the economic recovery. In recent months, though, the ratio has gone sideways.

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

Silver’s relative strength has been declining and is now underperforming Gold year-to-date.

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 two months we’ve seen a sharp reversal as the price of Lumber has declined 70%.

4) Currencies

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

After weakening in 2020, the US Dollar is showing signs of strength lately, not far from a year-to-date high.

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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 has weakened over the last month and is not far from a year-to-date low.

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

EM currencies rallied in 2020 but are low thus far in 2021.

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 has 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)

After hitting a new high in July, the the ratio of stocks to bonds has moved lower as stocks have pulled back and bonds have rallied.

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b) Stocks vs. Commodities ($SPY/$DBC)

Stocks are moving higher relative to commodities of late as Crude Oil has pulled back (15% off its high).

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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