From the desk of Willie Delwiche.

We like to say that dollars flow to where they are treated best. If that is the case, commodities could soon see a surge of inflows. The DBC/AGG ratio shows commodities surging to new multi-year highs versus bonds and the DBC/SPY ratio shows strength versus stocks as well. DBC has more than doubled up SPY on a YTD return basis (43% vs 18%). Commodities are proving again to be a place of relative safety when inflation and bond yields are on the rise. For many investors, commodity exposure isn’t even included as part of the asset allocation discussion. At least, not yet.

This is the video recording of the October 7th Weekly Town Hall w/ Willie Delwiche

10/07/21 2PM ET

From the desk of Willie Delwiche.

My team just participated in our final cross country race of the season, and I was thrilled with our performance. 

Our focus this season was effort and the improvement that follows. This week, our runners delivered. Big time! 

We had 17 athletes compete. Of this group, 13 matched or posted their best time of the season -- a few by wide margins. 

These accomplishments didn’t show up on the leaderboard. The most competitive runners on the top teams ran mile after mile over the course of the summer. As you would expect, they received their fair share of medals and accolades. 

But for us, it was a race full of individual victories.  

From the desk of Willie Delwiche.

With our latest Weight of the Evidence Dashboard improving and now signaling a neutral stance, we have put cash to work across our portfolios to reflect a more balanced approach.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

• Higher rates are fueling strength in Energy and Financials - leadership from those sectors can be seen across market cap levels.
• Our industry group heat map shows continued deterioration from large-cap groups and improvement from small-cap groups. Some 8% of large-cap groups made new 13-week highs last week vs 42% that made new 13-week lows. Among small-cap groups, it was 17% at new highs and only 13% at new lows. 

From the desk of Willie Delwiche.

Index-level volatility picked up in September and by month-end the S&P 500 has experienced its first 5% drawdown in nearly a year. Beneath the surface, we’ve been seeing increasingly widespread and substantial pullbacks since early this year. More than 50% of NASDAQ stocks are more than 20% below their highs, and more than 20% are more than 50% below their highs. These percentages have been trending higher since February and reflect a market that has churned, corrected and seen a substantial amount of air come out of it since Q1. With the indexes themselves now catching down, Q4 could be when the average stock starts to get back in gear.

This is the video recording of the September 30th Weekly Town Hall w/ Willie Delwiche & JC Parets

09/30/21 2PM ET

From the desk of Willie Delwiche.

We see what we are thinking about. The first time I really became aware of this was a few years ago after we bought our Subaru. I had gone from not thinking at all about Subarus to driving one and now I was surprised to see how many other Subarus were on the road. I realized quickly that I was not an automotive trend-setter, but just being impacted by the way our brains work.   

It happened again recently, though this time with a more exciting car. 

I flew into Reagan National airport in Washington, DC, on a recent trip to visit family in Maryland. 

I met up with my sister when I arrived and headed over to the rental car counter. I had reserved a four-door mid-sized model but what I got instead was a two-door sports car. A convertible Ford Mustang, to be exact. To be clear, they didn’t force the car on me. The agent asked if it would be okay and I quickly agreed.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

Key Takeaways:

• Bond-fueled cyclical rotation offers opportunity for better participation
• Breadth already better beyond our borders
• Commodity conflicts

Make no mistake about it, bond yields are rising. Yields on 2-year and 5-year T-Notes have surpassed their 2021 highs and are at levels not seen since their Q1 2020 COVID-related breakdown. The yield on the benchmark 10-year T-Note is above 1.50% and appears headed toward a test of the early 2021 high near 1.75% sooner rather than later. 

How high yields could rise in Q4 remains an open question. A two-handle by the end of the year does not seem far-fetched. As recently as 2019, 2’s, 5’s and 10’s all had yields above 2%. With inflation pressures showing little evidence of meaningfully subsiding the path of least resistance for bond yields appears higher. 

As we get ready for the final quarter of the year, we need to remember that while guesses are great, we don’t want to get ahead of what is actually happening. Evidence > Assumptions.