This is the video recording of the February 17th Weekly Town Hall w/ Willie Delwiche

02/17/22 2:00 PM ET

From the desk of Willie Delwiche.

I’m reading the book “Trillions” by Robin Wigglesworth right now. It’s about the rise of passive index investing – or, according to its sub-title, “How a band of Wall Street renegades invented the index fund and changed finance forever.” 

It’s been an enjoyable read so far. I’m about halfway through the book and am excited to see how it finishes. 

While Wigglesworth’s book has been written and published, the story of passive investing overall remains unfinished. If it is like other investing fads that have come and gone, some of the most exciting times (for better or worse) may lie ahead. History is littered with investment approaches that move from novelty to seemingly foolproof only to end in heartbreak and tears for those left holding the bag.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

Key Takeaways:

• Flat-footed Fed hurrying to get policy in harmony with reality
• German yields paving the way for US yields to exceed expectations
• Higher yields adding volatility, but Fed to focus on evidence of stress

Developments in and around the Ukraine are dominating the headlines, but history shows that market turmoil brought on by geopolitical events tends to be short-lived. More meaningful and lasting developments are coming from the bond market as it adjusts to a Federal Reserve that appears intent to aggressively bring policy more in line with inflation. The Fed needs to catch up to inflation (and economic fundamentals generally) and the bond market needs to catch up to the Fed.

From the desk of Steve Strazza @Sstrazza

Our Top 10 Charts Report was just published.

In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.

Finding Value Among Small Caps

We've been pounding the table on the importance of the 2021 lows for small caps. After consolidating for almost a year, sellers took control and knocked prices beneath this critical support zone last month. Until this level is reclaimed, risk is to the downside and we don’t want to own the Russell 2000. However, we can own small cap value stocks as they continue to show impressive relative strength. This is illustrated by the Russell 2000 Value ETF (IWN) holding above its former lows -- unlike its peer indexes in the lower panes. This speaks to risk-seeking behavior and is another example of the cyclical leadership theme that is playing out across various markets. And just like we don’t want to be long the indexes that are beneath their 2021 lows, when it comes to individual stocks, we want to focus on those that are resolving their ranges higher for long opportunities.

From the desk of Steve Strazza @Sstrazza

Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.

By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.

Let's jump right into it with some of the major takeaways from this week's report:

* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.

Macro Universe:

From the desk of Willie Delwiche.

There are no magic indicators that are right 100% of the time, no silver bullets, no “one Ring to rule them all.” That’s why we spend so much time talking about weighing the evidence and looking at the behavior of risk on and risk off indicators. That being said, there are times when one indicator or another seems particularly relevant. That is now the case with the number of stocks making new highs and new lows on the NYSE+NASDAQ. The spread between new highs and new lows peaked in early 2021 and was fading (though stayed positive) for much of the year. The situation deteriorated in November and new lows started to outnumber new highs. Even as the indexes moved off of their January lows, we’ve continued to see more stocks making new lows than new highs. Since 2000 all of the net gains in the major US indexes (S&P 500, NASDAQ Composite, Russell 2000, Value Line Geometric Index) have come when the cumulative net new high list has been expanding. The bottom line is that history suggests the indexes could continue to struggle so long as new lows are outnumbering new highs. 

This is the video recording of the February 10th Weekly Town Hall w/ Willie Delwiche

02/10/22 2:00 PM ET

From the desk of Willie Delwiche.

There is plenty of chatter today about inflation, the bond market, and the Fed. 

I have a couple charts to share – and a couple key points worth making. 

Inflation continues to run much hotter than a year ago and the Fed is still playing catch-up. The yearly change in the median CPI was at its highest level in a decade going into COVID, and is now at its highest level in 30+ years. Pressure is not letting up, and the 3-month change in the median CPI has surged to its highest level on record.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

Key Takeaways:

• Risk pairs moving toward risk off extremes
• Risk On is weakening more than Risk Off is strengthening
• Risk indicators point to risk off environment across multiple time frames

After highlighting our Risk Off - Risk On Range-O-Meter last Friday, I want to do a deeper dive into what we are seeing from a risk perspective. A majority of our Risk Off vs Risk On asset pairs (13 of 20) have seen more strength out of the Risk Off component than the Risk On Component in recent weeks. Over the past month the average pair has dropped below the 50% threshold and is now in the bottom half of its recent range. Financial sector pairs (Broker Dealers vs S&P 500, Regional Banks vs REITs) stand out as exceptions - areas where Risk On assets are showing strength and working toward new highs).