From the desk of Willie Delwiche.

Key Takeaways:

• Coming out of recession, economy typically roars beyond expectations
• Economic confidence is heating up but needs to expand
• Rise in yields & inflation reflect economic strength and are opportunities for investors

It’s been over two decades, but policy makers may finally be getting it right. This is not a blanket endorsement of the stimulus bill that is inching its way through Congress and toward the President’s desk. But it is a recognition that after bearing the cost of stimulus, the economy may be poised to reap the benefits of it as well. Wall Street has certainly celebrated excessive liquidity from the Fed. Fiscal stimulus at this juncture may help the Main Street recovery gain momentum and actually exceed expectations. That used to be the norm, though in recent decades recoveries have stalled out before gaining much traction. This has produced a bifurcated economy where those with Wall Street exposure have...

From the desk of Willie Delwiche.

Key takeaway: Sentiment shifts last week seemed more reflective of weakness in the headliners than the new weekly closing highs in the equal-weight S&P 500. This is a healthy development, especially for active investors who are seeing the market coalesce around a new leadership group while optimism comes off a boil. For passive investors, the pain of loss is more acute. This risk for the market overall is that diminished optimism morphs into more meaningful pessimism and breadth digestion turns to sustained deterioration. We have not seen that. Even as options data shows more concern and weekly sentiment surveys turn more neutral, fund flows continue to display optimism. When this reverses, risks are likely to rise. From a strategic positioning perspective, risks are elevated and passive investors may just be starting to feel uncomfortable.

Sentiment Chart of the Week: XLE/XLK Ratio

Rotation out of the...

From the desk of Willie Delwiche.

Key Takeaway: Crowded trades have come back to earth, but average stock and cyclical industry groups are making new highs. Economic momentum is building as recovery accelerates. Bond yields are still rising and long-awaited leadership rotation remains underway.

The leadership rotation continues in earnest. From a sector perspective, Technology dropped four spots last week and is on the cusp of falling out of the leadership group for the first time since 2019. Consumer Discretionary dropped another two spots and except for Utilities, would be in the last place in the rankings. Gaining strength this week are Communication Services and Materials. Beyond all the improving and deteriorating conditions seen at the industry group level across market cap levels, our rankings show a consistent theme: 8 of the top 10 groups (and none of the bottom 10) are small-caps and 8 of the bottom 10 groups (and none of the top 10) are large-caps.

From the desk of Steve Strazza 

Don't miss this weeks Momentum Report; our weekly summation of all the major indexes at a Macro, International, Sector and Industry Group level. As a reminder, we analyze this shorter-term data within the context of the structural trends at play.

From the desk of Willie Delwiche.

The monthly jobs report always gets a lot of attention. Headlines usually focus on the number of jobs added (or lost) in the month and the unemployment rate. Occasionally, the hourly earnings number will be quoted and even more rarely there will be a mention of average weekly hours worked. While the noise focuses on the payroll number (+379,000 in February), more important news is that this accompanied a contraction in the average weekly hours number. The combination of these is the aggregate weekly hours index, which fell in February to its lowest level since September and remains more than 6% below its peak. If the US economy is on a sustainable road to recovery, this index should start to move meaningfully higher in the months ahead. It’s something I’ll continue to be watching.

This is the video recording of the March 4th Town Hall Meeting w/ Willie Delwiche & JC Parets.

03/04/21 2PM ET

From the desk of Steve Strazza.

Our Top 10 report was just published; our weekly report highlighting the best 10 ideas and respective charts we are seeing across the markets this week.

1. No More Divergences For The Dow

There had been a classic “Dow Theory” divergence in place for several years, dating back to when the Dow Transportation Average peaked in 2018. This cleared itself up late last year when Transports actually beat Dow Industrials back to new all-time highs. They’ve continued to lead in the time since. What really matters though is that both continue to grind higher, confirming one anothers new highs along the way. We often talk about Modern or 21st Century “Dow Theory,” which uses the Semiconductor Index in place of Transports. This is because a strong argument can be made that semis are the new drivers of what is now a mainly services-based economy in the US (and abroad). While Transports continue to trade more or less at record highs, Semiconductors haven’t made a new high in over two...

From the desk of Willie Delwiche.

Key takeaway: Another bout of late-month market volatility produced quickly frayed nerves. The VIX spiked and put/call ratios moved away from excessive complacency. Our tactical sentiment indicators point to still-elevated optimism even as sentiment surveys have eased recently. Risks arise when breadth deteriorates and a sustained shift from optimism to pessimism emerges. We are not seeing this yet. The $78 billion of equity ETF inflows in February (over the past two months equity ETFs have seen daily net outflows on only 3 occasions) suggests excessive investor positioning, but the risks inherent in that have not yet been manifested. Despite last week’s volatility, cyclical sector leadership persisted and defensive areas made new lows. That does not suggest investors are moving quickly to a risk-off posture.

Sentiment Chart of the Week: XLU/SPY & XLP/SPY Ratios

Two of the most defensive sectors, Utilities and Staples, made new lows...

From the desk of Willie Delwiche.

Momentum fades but firming economy keeps evidence bullish.

From the desk of Willie Delwiche.

This All Star Charts PLUS Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.

From the desk of Willie Delwiche.

Key Takeaway: Market volatility has not interrupted rotation to new leadership. Long-term breadth remains robust, but shorter-term trends are in need of repair. Earnings and economic data continue to supply the market with positive surprises.

The Industrials sector made a big jump in our relative strength rankings this week, moving from 7th to 3rd among the large-cap sectors. Elsewhere, Consumer Discretionary continued to lose relative strength and Materials dropped out of the top five. Technology remains highly ranked (2nd overall) but on a short-term basis, it has been a market-laggard. If it cannot re-assert strength soon, its time in the leadership group could be winding down. Our industry group heat map shows overwhelming relative strength from small-cap groups (nine of the top ten & only one in the bottom ten) and widespread relative weakness in large-cap groups (none in the top ten and seven of the bottom ten). Deteriorating trends in the Technology groups...

From the desk of Steve Strazza 

Don't miss this weeks Momentum Report; our weekly summation of all the major indexes at a Macro, International, Sector and Industry Group level. As a reminder, we analyze this shorter-term data within the context of the structural trends at play.