Edition 0005. 02.26.2022.
This weekly commentary will assess the macro environment using a top-down approach. This is a starting point. While the broadest view helps point us to opportunities and cautions us of risks, we must zoom in. Looking from above by itself will lead to missed opportunities and disappointing losses. When we zoom in, the opportunities become clear. To increase the utility of this research, I use ETFs where possible.
We start with performance tables. These allow us to track how the symbols have performed over several rolling periods of time. We can see New high/low details and determine trend and momentum using quantitative measures. Here are a few notes to help you interpret the tables.
They are grouped first by family, and then sorted by performance.
Quantitatively, the general trend is determined by price in relation to its 40-week simple moving average. 1 means the trend is up. 2 means the trend is vulnerable. 3 means the trend is down.
1 = close is above the ma and the ma is up.
2 = close is below the ma and the ma is up, close is above a flat or ma that is down.
3 = close is below the ma and the ma is down.
Quantitatively, the general momentum condition is determined by a 12,26,09 Price Percentage Oscillator – think MACD. 1 means the momentum condition is positive. 2 means the momentum condition is positive but decelerating. 3 means the momentum condition is negative but accelerating. 4 means the momentum condition is negative.
1 = the oscillator is above 0 and the histogram is above 0.
2 = the oscillator is above 0 but the histogram is below 0
3 = the oscillator is below 0 but the histogram is above 0.
4 = the oscillator is below 0 and the histogram is below 0.
The ranking of closing highs and lows is as follows:
1 = 4-week closing high or low.
2 = 13-week closing high or low.
3 = 52-week closing high or low.
4 = all-time closing high or low.
Performance Tables & Performance Charts.
Asset Class Performance Table.
This table is a view from the highest level. It is sorted by one week performance. It looks at the broad groups of domestic and foreign equites, domestic and foreign real-estate, commodities, domestic bonds, and the US dollar.
Last week we saw a slight change in character from these ETFs. US real estate had its first strong week of the year, and US equities outperformed international ones. Staying consistent, we saw commodities push to new 52-week closing highs again, as bonds fell to new 52-week closing lows again. The US dollar finished with a gain and closed at $96.62.
Asset Class Year-to-Date Chart.
The year-to-date picture has not changed much from two weeks ago. Commodities lead while US equities and real estate lag.
***For a detailed commentary on the US equity landscape, see the weekly edition of The US Equity Landscape here.***
US Equity Factor Performance Table.
This table, sorted by one week, takes a broad view of strength and weakness across the value, growth, and core factors across the US equity cap-scale.
Last week gave us a rally is in these factor ETFs. We saw small and mid-cap leadership while value lagged. From a pure perspective, we saw growth lead and value lag. It is notable what while half of the ETFs made new 4-week closing highs, only one has a quantitatively positive trend and momentum condition.
US Equity Factor Performance Year-to-Date Chart.
Year-to-date not much has changed. RPV, the S&P 500 pure value ETF is the only ETF with a gain on the year.
***For a detailed commentary on 11 S&P 500 sectors, see the weekly edition of The Sector Inspector here.***
S&P 500 Factor Performance Table.
This table, sorted by one week performance, takes a look at the strength and weakness across the S&P 500 factor landscape.
Last we gave us a bounce across the symbol list. Risk on was the theme with high-betta and growth leading, though there was appetite for the SPVL, low-volatility ETF, as well. We continue to note the pure value and quality ETFs are the only which remain in a quantitative uptrend with a positive momentum condition. Notably, those two are the only ETFs showing a year-to-date gain.
S&P 500 Factor Performance Year-to-Date Chart.
US Sector Industry Groups (GICS Level II) Performance Table.
This table, sorted by year-to-date performance, shows us the view from under the surface of the well-known 11 S&P sectors and looks at the 24 industry groups across the US equity cap-scale.
Last week we saw real estate finish in the top 3 positions across the cap scale. YTD, not much has changed. We see gains in energy, staples, and financials.
For a refresher on the MSCI GICS Classification Standards, visit this website.
Commodities Performance Table.
While many investors focus on equities, there are indeed three asset classes, not including currencies, which are bonds, stocks, and commodities. This table, sorted by one week performance, takes a very broad perspective on the commodities landscape. Just for context, generally the commodity market is broken into energy, metals (industrial and precious), agriculture (grains and softs), and livestock.
Last week we saw leadership in energy, base metals, and agriculture, all of which closed at 52-week highs.
Commodities Performance Year-to-Date Chart
Not much has changed here as energy, agriculture and base metals continue their year-to-date leadership.
Commodities Performance Table - Detailed.
This table, sorted by one week performance, zooms in.
Steel and aluminum led the base metals higher, though 4 of the 6 ETFs closed at new highs. Copper lagged and is still stuck in a trading range. Precious metals saw gains in palladium and silver while gold retreated.
Energy was strong across the board with brent and natural gas leading.
In the agriculture space, grains palm oil and wheat ripped, while in the softs lumber and water led.
Livestock was weak across the board and were pulled lower by lean hogs.
Here is the same table sorted by the year-to-date change.
Bonds Performance Table.
The famous CMT and founder of All-Star Charts, J.C. Parets, is known for saying, “I trust two things in this world, dogs and the bond market.” The bond market is where the “smart” money lives. Thus, following the bond market is very helpful in understanding investor sentiment and positioning. Remember a few things about this market. Bonds and yields move inversely to one another. This means, if bonds go down then yields go up and if bonds go up then yields go down. Generally speaking, bonds go down when inflation goes up and/or when economic prospects are going up. The reverse is also true generally speaking, bonds go up when inflation goes down and/or when economic prospects going down. This table, sorted by one week performance and grouped by international bonds, corporate bonds, municipal bonds, US government bonds, and then we have 3 broad bond ETFs.
Bonds continue to sell off. We did see some buyers in both domestic and international TIPS. We also saw some buying of junk bonds across all durations. Our entire universe of bond ETFs are in downtrends with a negative momentum condition. It is noteworthy that both short duration US TIPS and international TIPS made new 4-week closing highs.
Bond Performance Year-to-Date Chart.
Not much has changed here. Mint, essentially cash, and STIP, short duration TIPS, battle it out for 2nd while EMB, emerging market bonds, dropped into last place.
Here is the shape of the yield curve - courtesy of www.StockCharts.com.
Friday 02/18/2022 Close:
Friday 02/25/2022 Close:
International Equities Performance Table.
This is another very high-level performance table sorted by one week performance. Please think of the ETFs this way:
ACWI = developed and emerging markets. (including the US).
ACWX = developed and emerging markets. (excluding the US).
URTH = developed markets. (including the US).
EFA = developed markets. (excluding the US).
EEM = emerging markets.
EMXC = emerging markets. (excluding China).
FM = frontier markets.
SPTM = US market (small, mid, & large cap).
SPY = US market (large cap).
For a refresher on the how MSCI organizes the global markets, visit this website:
Last week the US equity markets led the world. This is why URTH and ACWI are up as well, the US is the largest component of both ETFs.
International Equities Year-to-Date Performance Chart.
This year-to-date frontier and emerging markets continue their battle for the role of least bad amongst the equity markets. The US continues to be the most bad amongst the equity markets.
International Equities Performance Table - Detailed.
Here is a table with many international ETFs, sorted by one week performance.
Emerging markets were led higher by Columbia, Brazil, and Chile in Latin America. Indonesia showed some gains in Asia.
Of note in the frontier markets space was Argentina which put in a new 13-week closing high.
In the developed markets space, the gains were led by Norway, New Zealand, and Denmark.
Here is the same table sorted by year-to-date change.
Conclusion
We saw a lot of oversold bounces last week. Commodities continue to lead the asset classes, as bonds lag. We are seeing strength in the US pure value equities. Around the world we are seeing strength in nations that are flush with natural resources including metals and oil, as well as financials.
Comments