From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Outside of the large-cap averages in the US, most stocks have been stuck in sideways trends for much of 2021. We’ve seen breakouts fail in both directions over the past two months, as sloppy price action continues to govern the broader market.
As we discussed in our last intermarket post, this range-bound action has not just been the case for stocks on an absolute basis. We’re seeing the same thing from commodities, cryptocurrencies, and even our risk-appetite ratios. Risk assets have simply been a mess.
Let's take a look at one of our favorite risk-appetite ratios, as there's been an important development in the discretionary versus staples relationship.
Here is large-cap consumer discretionary $XLY versus consumer staples $XLP:
There was also plenty of evidence from our intermarket relationships and ratios to support these moves. Discretionary-versus-staples ratios broke to fresh highs. Copper versus gold. Stocks versus bonds. Inflation expectations. They all made new highs recently. But, just like most stocks on an absolute basis, many of these breakouts have since failed.
Of all these developments, it's hard to argue that any is more important than the stocks-versus-bonds ratio retracing back beneath its Q1 highs. With long rates making new lows and stocks selling off, let's talk about how we are approaching both of these asset classes right now.
Here's the S&P 500 $SPY relative to long-term Treasury bonds $TLT, zoomed out to the early 2000s.
Welcome to our latest RPP Report, where we publish return tables for various asset classes and categories, along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
We consider this our state of the union address, as we break down and reiterate both our tactical and structural outlook on various asset classes. Our ultimate goal is to discuss the most important themes and developments that are currently playing out in markets around the world.
There's been plenty of action these past few weeks. Let's kick things off with stocks and try to make sense of what we're seeing.
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Everything's falling into place for the bulls.
Mid-caps and small-caps finally joined their large-cap peers at new record highs earlier this month. A bullish expansion in breadth is confirming these breakouts at the index level.
We're also seeing strong confirmation in the form of other risk assets resolving above key levels of interest.
As suspected, our risk checklist has moved up to its highest level since we began tracking it this summer. This list does an excellent job summarizing the global landscape.
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Most risk assets peaked during Q1 or May of this year and have consolidated in sideways ranges ever since.
But the bulls have started to take control of many of these trends. We're seeing more and more upside resolutions -- and this phenomenon isn't limited to Crude Oil, Rates, AUD/JPY, and cyclical stocks. Similar patterns are also playing out when we look at intermarket ratios, particularly those we use to measure risk appetite.
In today’s post, we'll dive into one of our favorite risk-appetite relationships and check for price confirmation in a variety of ratios.
First up is none other than large-cap consumer discretionary versus consumer staples stocks:
As we progress into Q3 of Fiscal Year 2021-2022, this playbook outlines our thoughts on every asset class and our plan to profit.
This playbook will cover our macro view, touching on Equities, Commodities, Currencies, and Rates, as well as outline our views on the major nifty indices and the sector/thematic indices.
We also cover individual stocks we want to be buying to take advantage of the themes discussed in the playbook.