Edition 0002. 02.05.2022.
This weekly commentary will assess the macro environment using a top-down approach. Be cautioned. This is a starting point for you own research. Opportunities hide below. While the broadest view helps point us to opportunities and cautions us of risks, we must zoom in and confirm what we see from a higher level. Looking from above by itself will lead to missed opportunities and disappointing losses. The top is a starting point. When we zoom in, it is then 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 = 5-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 the year-to-date performance. It looks at the broad groups of domestic and foreign equites, domestic and foreign real-estate, commodities, domestic bonds, and the US dollar.
Right away we can see a 52-week closing high in a broad basket of commodities, GSG. We can also see 52-week closing lows in the aggregate bond and US treasury bond ETFs. The US dollar is 1 week off of its high, but this week it declines by more than 1.75% which actually turns its returns negative YTD. GSG is the only asset class on our list to show a positive YTD return.
Asset Class Year-to-Date Chart.
Our YTD chart shows ACWX, developed and emerging market equities excluding the US, move from 6th position to 3rd position.
***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 year-to-date performance, takes a broad view of strength and weakness across the value, growth, and core factors across the US equity cap-scale.
We see continue to see red down the YTD performance column. From this level the relative strength, those are the ETFs with the smallest losses, appears in the large-cap value space. The weakest factors are growth.
US Equity Performance Year-to-Date Chart.
***For a detailed commentary on 11 S&P 500 sectors, see the weekly edition of The Sector Inspector here.***
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.
Now we start to see some green in amongst the symbols. Energy is at the top of the list for large, mid, and small-caps. Banks are 2nd for large, mid, and small caps. Insurance is 3rd for large and mid-caps, while materials is 3rd for small caps.
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 year-to-date 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.
7 of these 9 symbols are green YTD. We even see 5 of these 9 symbols making new 52-week closing highs. The gold metal goes to energy with a 16.86% YTD gain. The silver goes to livestock with an 8.6% YTD gain. The bronze goes to agriculture with a 5.33% YTD gain.
Commodities Performance Year-to-Date Chart
Commodities Performance Table - Detailed.
Here we see 13 of our 48 symbols showing double digit YTD gains! The gold goes to natural gas. The silver goes to WTIC oil. The bronze goes to the precious metal Palladium.
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 year-to-date performance and grouped by international bonds, corporate bonds, municipal bonds, US government bonds, and then we have 3 broad bond ETFs. Right away we see all red. 0 of the 24 symbols in our universe are up year-to-date. US government bonds are all down, but more so on the longer end of the yield curve. International bond markets are down more than the US bond markets. We should note, when looking at last week’s performance, we see TIPS – treasury inflation protected bonds finishing in the green. This lines up with rising yields due to inflation expectations.
The YTD performance column is entirely red. We see 16 of 24, 2/3rds, of our list making 13 or 52-week closing lows. The entire universe is down, on average, 2.88% YTD and is, on average, 66 weeks from the last 52-week closing high. It is very interesting to note what happened over the last trading week. 2 weeks ago we saw gains in TIPS, the treasury inflation protected securities. This week we did not see that. This week we saw gains in short-term and high-yield municipal bonds as well as gains in international treasury, high-yield, and corporate bonds.
Bond Performance Year-to-Date Chart.
Here is the shape of the yield curve - courtesy of www.StockCharts.com.
Friday 01/28/2022 Close:
Friday 02/04/2022 Close:
International Equities Performance Table.
This is another very high-level performance table sorted by year-to-date 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.
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:
All red here, again. From the highest level, equites across the globe are showing YTD losses. The major world indices that are the least down continue to be frontier and emerging markets. The US equity markets continue to lead the world’s equity markets lower. Most markets are, on average, 20 weeks from their last 52-week closing high. If we look at the chart below, we can see frontier markets continue to hint at weakening after being overtaken by emerging markets last week. Developed markets, ex-US, did try and overtake FM last week.
International Equities Year-to-Date Performance Chart.
International Equities Performance Table - Detailed.
Here is a table with many international ETFs, again sorted by year-to-date performance. I warned you that only looking at assets from a high level will lead to missed opportunities. If you’ve stuck it out and read this far, you would be thinking the only things up this year are commodities. That is true from a high level, but not true when you zoom in. When we drill down and look at specific countries, we can find strength.
We can see from the table above, 25 of our 51 country indices are up, and 2 are up double digits! We see the most strength in Brazil, Greece, and Saudi Arabia. 6 of the 51 ETFs are making new 5, 13, and 52-week closing highs.
Conclusion
Last week saw continued strength in the general commodities space. From the broadest perspective, international equities ex-us, us equities, and domestic and international real estate all bounced as the dollar fell, and is now negative YTD, and domestic and international bonds continued to fall.
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