From the desk of Steve Strazza @Sstrazza
For the week ended Friday, May 22, 2020:
Every weekend we publish performance tables for a variety of different asset classes and categories along with commentary on each.
This week’s main theme is risk-on action from beaten-down areas which we’ll highlight in our US Index and Factor ETF tables, below.
We’re putting a lot of emphasis on risk-appetite measures right now in order to provide insight into how the recent rangebound activity in Equity and Bond markets is likely to resolve itself.
The most basic way to assess risk-tolerance is to compare the performance of risk-on vs risk-off assets. As such, this post will focus on how the offensive vs defensive areas of various markets are acting right now.
Click table to enlarge view.
This week we saw some more mean-reversion in the laggards in our US Index ETF table. The most risk-on areas such as Transports (DJT) and the Mid/Small/Micro-Cap segments have been long-term underperformers, yet exhibited notable relative strength this week.
Since we know one week doesn’t make a trend… Let’s take a long-term look at Transports.
Still trapped beneath significant overhead supply at the 2018 lows while making fresh 15-year lows relative to the S&P. The SMID-Cap space looks more or less the same.
There is nothing here to support a decent argument in favor of a longer-term trend reversal in these risk-on areas.
Moving on now to the US Factor ETF table and the story is no different. Notable strength from a secular laggard this week, High Beta (SPHB).
High Beta has also been the clear leader over the trailing month, about tripling the average return of its peers.
Here is a chart from the inception of the SPHB ETF.
Similar to Transports, despite a nice bounce off the lows, things are still a mess structurally for this risk-on factor. Buyers and sellers are currently battling it out at a logical level of multi-year support, turned resistance around 35-36. While encouraging, price really needs to rally above the 2019 lows near 39 before we can consider this any more than a counter-trend move.
Looking now at our US Sector ETF table, and its more of the same…