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[PLUS] Weekly Observations & One Chart for the Weekend

May 21, 2021
JC Parets

From the desk of Willie Delwiche.

Every streak comes to an end. After a record 243 consecutive days of positive readings, the US economic surprise index slipped below the zero line this week. For a mean-reverting index that has historically spent as much time above zero as below zero, this was a remarkable stretch of better than expected data. While the data now is as strong as it has been at any point in the last year (in some cases, decades), expectations have now surpassed reality and so the surprise index is moving lower. This removes what had been a tailwind for equities and allows for a test of the resiliency of the current rally. Coupled with the tightening financial liquidity conditions and changing risk appetites,  this could make for a choppy summer in the stock market.

Breadth Thrusts & Bread Crusts: Cusp of Change

May 20, 2021
JC Parets

From the desk of Willie Delwiche.

A box of family photos showed up at my house this weekend. 

Some are relatively recent, others stretch back nearly a century. Together, they tell a story of generation after generation experiencing life in its many stages. Each one captures a moment

One that really stuck out to me was an image of a camping trip from more than 90 years ago. You can see an old car with a canvas tent pitched against it. At a picnic table, we see a lady and two young boys. The younger of these two is my grandfather. Next to him is his brother. Behind him is their mother (my great-grandmother).

“Now that's camping done right,” I thought as I inspected the picture.

[PLUS] Weekly Macro Perspectives - Focus is on the Fed, but Market Already Tapering

May 19, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • Speculative excesses are being unwound as risk appetites reverse
  • Upward pressure on bond yields a headwind for equities
  • Liquidity is the lifeblood of the market and right now it is evaporating

While the Fed is musing about tapering, the market, as usual, is already in action. Upward momentum in bond yields and an economy that has soaked up liquidity have become headwinds for equities at a time when investors are already re-thinking risk appetites.

[PLUS] Weekly Sentiment Report

May 18, 2021
JC Parets

From the desk of Willie Delwiche.

Key takeaway: Amid the economic optimism that is seen in surveys and magazine covers, the stock market is experiencing an unwinding in speculative excesses that has just begun. This shift in risk appetite makes a healthy sentiment reset like we saw in March a less likely outcome this time around. More probably is that we are moving from excessive optimism to some meaningful degree of pessimism. This is the area of the sentiment curve when price is most vulnerable to correction. With upside economic surprises waning and near-term breadth trends more mixed, the choppy environment of the past few weeks could not only persist, but even intensify. 

Sentiment Report Chart of the Week: Magazine Covers

[PLUS] Weekly Market Notes & Breadth Trends

May 17, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Investors finding themselves with too much Technology exposure. Speculative unwind occurring as neglected areas of the market make new highs. Inflation concerns are overdone in the near term but represent a new reality for the coming decade.

[PLUS] Weekly Observations & One Chart for the Weekend

May 14, 2021
JC Parets

From the desk of Willie Delwiche.

The one chart is actually two charts this week. On the left is the S&P 500 and the percentage of stocks in that index that are above their 200-day average (90%). On the right is the NASDAQ Composite and the percentage of stocks in that index that are above their 200-day average (50%). The contrast could hardly be more stark. Even as weakness has been seen in some of the largest sectors (like Technology), the S&P 500 is being supported by ongoing strength in cyclical values areas. The NASDAQ has little to no exposure to those sectors that are doing the best right now and is bearing the brunt of speculative excesses being unwound (the collapse in equity call options is evidence of this shift).

Breadth Thrusts & Bread Crusts: Farmer’s Market Timing

May 14, 2021
JC Parets

From the desk of Willie Delwiche.

I planted most of the vegetables for the garden over the past couple of weeks. Seeds and seedlings. Neat rows and clustered groups. Into the raised beds they went.  

I don't know what the day to day (or week to week) fluctuations in the weather will be. But I do know that it is (finally) Spring. Planting as the air temperature rises and our daylight hours expand increases the likelihood of a bountiful garden later this summer. Leafy greens (kale, arugula, chard) were the first into the soil. They can withstand cooler temperatures than the cucumbers, peppers and tomatoes.

As a gardener, I have some understanding of the underlying trends and conditions that guide the seasons. Plant too soon and a late frost will kill off tender seedlings. Plant too late and the summer heat will sap the strength of plants without well-developed root systems. 

It's about knowing the growing environment, managing temperature risks and finding opportunities to increase vegetable production.

Some might dismiss this as a farmer’s market timing. I call it prudent.

Breadth Thrusts & Bread Crusts: "It’s a Market of Sectors"

May 13, 2021
JC Parets

From the desk of Willie Delwiche.

JC and I were talking about the market last week in one of our town hall meetings.

"It's a market of stocks," he said, offering up the old Wall Street adage about looking at market health by looking beneath the surface. 

I don't dispute the wisdom embedded in that comment. It's an adage for a reason.

But my response to JC was, "No, it's a market of sectors." 

Let me explain…