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[PLUS] Weekly Sentiment Report

June 2, 2021
JC Parets

From the desk of Willie Delwiche.

Key takeaway: Sentiment continues to shift away from optimism and toward pessimism, though as with anything it is not a straight line. Speculative activity is flaring up again this week, the trend in trading volumes and call activity suggests less risk appetite on the part of investors. Optimism unwind is happening in the context of elevated longer-term risks, with earnings growth expectations and valuations at elevated levels. A sideways summer that cools optimism and helps relieve valuation pressures could help pave the way for the resumption of a cyclical rally later this year.

Sentiment Report Chart of the Week: Diminishing Highs

[PLUS] Weekly Market Notes & Breadth Trends

June 1, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaways: Economic data reflects pinched financial liquidity. US price trends are resilient even with momentum and breadth becoming more challenging. Rest of the world is taking on a leadership position versus the US, with developed Europe in the lead.

[PLUS] Weekly Observations & One Chart for the Weekend

May 28, 2021
JC Parets

From the desk of Willie Delwiche.

We had fun with this one all week. We can frame it in the context of Ford’s aggressive foray into the EV market or more narrowly as an expression of suburbanite luxury truck preferences. It fits well within the growth to value conversation as well as “old is new and new is old” themes. Even if it’s not seen strictly as a pair trade, it reflects a shift in investor interest and preference. After establishing a big base versus Tesla (one which looks an awful lot like an inverted head-and-shoulders pattern), Ford is poised to break out and move into empty space. 

Breadth Thrusts & Bread Crusts: Wall Street is Stuck in the Past

May 27, 2021
JC Parets

From the desk of Willie Delwiche.

Wall Street is a trend following machine.

We all know the universal disclaimer: past performance being no guarantee of future results. 

But what has worked recently always gets a ton of attention from Wall Street. And for the past decade, buying and holding US large-cap stocks has worked. 

If you’ve benefited from that trend, you deserve congratulations. Deviating from the principles of diversification and putting all your investment eggs in that one basket has increased your return and reduced volatility. To some extent, the worse your behavior (relative to theory), the greater your reward.

There is plenty of historical data that says that was not supposed to happen. But it did. Price is price, and we don't argue with it. Lived experience takes place in the space between theory and anecdote. That is where most actual investment decisions take place as well.

But we can only celebrate the last victory for so long before getting ready for the next game. 

[PLUS] Weekly Macro Perspectives - Housing Market Facing A Curveball

May 26, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • Housing market activity restrained by supply imbalances
  • Surging demand and lack of supply sends home prices to record levels
  • Buyers becoming price-sensitive and home buying plans plummet

I’ll start by acknowledging more questions than answers on this subject. But that itself is part of the point. The housing market was one of the earliest parts of the economy to bounce back last year, but activity in recent months has been more uneven. Existing home sales in April unexpectedly fell (and are at their lowest level since June) and new home sales fell more than expected last month and data for the preceding month was revised lower.  There is evidence that supply constraints (in terms of both current housing stock as well as workers and supplies necessary to build additional units) are weighing on activity. But when something as diverse and complex as the national housing market gets wrapped up in a narrative that is almost universally endorsed, I get more than a little skeptical. 

[PLUS] Weekly Sentiment Report

May 25, 2021
JC Parets

From the desk of Willie Delwiche.

Key takeaway: Sentiment continues to shift from optimism to pessimism. Unlike the March optimism unwind, the current situation is associated with a waning risk appetite on the part of investors and a more challenging liquidity environment. This argues for patience from a tactical perspective and warns against a premature conclusion that the speculative excesses have been removed from the system. While the pullbacks in some of the speculative areas may seem substantial, they still pale in comparison to the run-ups that were seen in late 2020 and early 2021. In such an environment, less may be more. Surviving such unwinds is not only about preserving capital, but also maintaining mental health.

Sentiment Report Chart of the Week: Risk Appetite Wanes

[PLUS] Weekly Market Notes & Breadth Trends

May 24, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Mixed liquidity backdrop makes rebuilding risk appetites more of a challenge. Tailwinds that have fueled cyclical strength are tapering even if the Fed is not yet ready to. Breadth on a slippery slope from digestion to deterioration to downtrend.

While the indexes themselves continue to hold up relatively well, there is evidence of deterioration that cannot be overlooked from a tactical perspective. Whether this builds into a situation that argues for more defensive positioning from a cyclical perspective remains to be seen.