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[PLUS] Weekly Observations & One Chart for the Weekend

August 27, 2021
JC Parets

From the desk of Willie Delwiche.

While what’s happening beneath the surface in US markets is a bit frustrating, we are seeing evidence of improving breadth on a global basis. Just shy of 75% of ACWI markets are trading above their 50-day averages, the highest level in more than two months. For comparison, 63% of S&P 500 stocks are above their 50-day averages. Broad global strength is important for the S&P 500 (especially given the current lack of a breadth-thrust backdrop) and could be critical if global equities are going to move into a leadership position as we move toward the end of 2021.

[PLUS] Weekly Sentiment Report

August 25, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: It appears the bulls are preparing to pack it up and call it a day. Dark clouds are starting to roll in, as the slow deterioration beneath the surface has taken its toll. New highs and a relentless rally in the major indexes paint an alternate reality versus the experience of the average stock--a reality that hasn’t quite sparked the interest of the bears so much as it’s exhausted the bulls. Active investment managers continue to taper their exposure, and advisory services have turned their least bullish in more than a year. A storm is brewing in the form of a re-set in sentiment. As it inches closer, the question becomes more of “when” and “how,” not “if.”  

 

[PLUS] Dynamic Portfolio Management: Follow Crypto Strength

August 24, 2021
JC Parets

From the desk of Willie Delwiche.

As we've still yet to see a decisive shift to a risk-on environment, caution remains the general guiding principle for this market. At the same time, there are opportunities in crypto that we'd like to take advantage of. 

In the Cyclical portfolio, we’re shifting domestic equity exposure from small-caps (IJR) to mid-caps (IJH). Small-caps have been stuck below a now-falling 50-day average for nearly two months, and our industry group rankings show small-cap groups losing relative strength versus both large-caps and mid-caps.

Two things to note in the Tactical Opportunity portfolio update - a change that is being made and one that is not being made. First, we’re putting some cash to work by adding a 5% position to Ethereum (ETHE). Breakouts are being seen across the crypto space, and we want to follow that strength. Second, we’re keeping our exposure to commodities (DBC) for now. We’re giving it the benefit of the doubt, as the longer-term up-trend remains intact.

 

[PLUS] Weekly Market Perspectives - Seeing EM Strength Beneath the Surface

August 24, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • Emerging Market indexes weighed down by weakness at top.
  • Europe & Middle East showing leadership.
  • If China is finding a bottom, broad EM strength could support a sustained rally.

Here in the US, a handful of mega-cap stocks are pushing the indexes to new highs, while beneath the surface many stocks are languishing. The NASDAQ Composite began this week by making a new all-time high, but it was the first time in eight days that there were actually more stocks making new highs than were making new lows. The S&P 500 is trading in record territory, while nearly 40% of its stocks aren’t even above their 50-day averages. 

[PLUS] Weekly Market Notes & Breadth Trends

August 23, 2021
JC Parets

Key Takeaway: Indexes find ways to shrug off disappointment. Beneath the surface, market bending, not yet breaking. Surge in bond yields would sap financial liquidity.

  • We saw plenty of volatility in the weekly rankings last week (e.g., Health Care rising from #6 to #2, Financials dropping from #1 to #5) but some underlying trends remain intact: Cyclicals (especially outside of Financials) are lagging and the Communication Services sector may not be quite as strong as its current ranking suggests (on an equal-weight basis, it’s ahead of only Energy).
  • The Industry Group heat map shows nine of the top ten groups are either large-cap or mid-cap groups (mostly large-cap). Nine of the bottom ten groups are either small-cap or mid-cap (mostly small-cap). More on this later.

[PLUS] Weekly Observations & One Chart for the Weekend

August 20, 2021
JC Parets

From the desk of Willie Delwiche.

On the heels of last week’s surprising drop in the University of Michigan Consumer Sentiment index, we are now seeing a similar decline in the Future Activity Index from the Philadelphia Fed. Just two months removed from a multi-decade high, this index has undercut its post-Covid lows and is now at its lowest level since late-2019. The 2-month decline is the largest in more than 50 years. Not only is current economic data falling short of expectations, but prospects for future growth are also being revised lower. This comes at a time when earnings expectations are still being pushed higher, valuations have swelled and investors remain all-in on equities.

[PLUS] Weekly Sentiment Report

August 18, 2021
JC Parets

From the desk of Willie Delwiche.

Key takeaway:  There are signs of bears beginning to stir. Pessimism on the II and AAII surveys has reached its highest level since Q1 and put/call ratios show investors turning to the options markets for insurance rather than leverage. NASDAQ trading volume continues to unwind after surging to new highs earlier this year. This evidence of growing investor/consumer concern, especially when combined with deteriorating market internals and a disappointing macro backdrop, creates an environment ripe for a sentiment unwind. Whether a full unwind comes to fruition or not, rising pessimism tends to weigh heavy on equities after a period of extreme optimism.  

 

[PLUS] Weekly Macro Perspectives - Inflation’s Bite Likely To Persist

August 17, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • Inflation narratives, not inflation itself, proving to be transitory 
  • Economic rebound and higher inflation sapping financial liquidity
  • Stocks (and bonds) usually struggle when inflation surges

With inflation, first it shocks you then it sneaks up on you. That is the way it has played out in 2021. This Spring, when the yearly inflation numbers started to heat up, newspapers ran banner headlines announcing the news and inflation-related Google searches exploded. In the months since, inflation has moved out of the headlines and searches related to it have fallen. What has shown little sign of letting up is inflation itself.