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View From The Top. Week 6.

Edition 0003. 02.12.2022.


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, again. We can also see 52-week closing lows in the aggregate bond and US treasury bond ETFs, again. The US dollar is now 2 weeks off of its 52-week high. This week the dollar gained and closed at $96.07, which brings it back into the green for the year.


Asset Class Year-to-Date Chart.

Our YTD chart shows commodities, broadly speaking, continue to show strength. The US Dollar turned positive on the year, again. ACWX, developed and emerging markets ex-us, and VNQI, global real estate ex-us, show strength and held above us bonds in the form of the AGG and GOVT ETFs.

 

***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 ETFs with the smallest losses, appear in the large-cap value space. The biggest losers are growth across the cap-scale. Lat week we saw green from both small and mid-caps.


US Equity Factor Performance Year-to-Date Chart.

 

***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 year-to-date performance, takes a look at the strength and weakness across the S&P 500 factor landscape.

This year-to-date we see pure value and the dividend ETF continue to lead. Last week week saw a little relief rally in high beta.


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.

YTD we continue to see leadership from energy, financial, and consumer staples industry groups. Last week, we an increased number of industry groups with a positive performance. I suspect they are largely relief rallies and reopening plays.


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.

Its official, precious metals have joined the party, and now show a YTD gain! Last week we saw precious metals and agriculture - softs and grains - outperform the rest of the commodity space. Energy was the notable laggard, though this is due to the almost 12% drop in natural gas which offset the gains in oil and gasoline.


Commodities Performance Year-to-Date Chart

Commodities Performance Table - Detailed.

Lots of gains here. Plenty of 52 week closing highs.


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 20 of 24 ETFs on our list making 13 or 52-week closing lows. The entire universe is down, on average, 3.48% YTD and is, on average, 67.5 weeks from the last 52-week closing high. It is very interesting to note what happened over the last trading week. This week we saw gains in TIPS after that hot CPI reading.

Bond Performance Year-to-Date Chart.

Here is the shape of the yield curve - courtesy of www.StockCharts.com.

Friday 02/04/2022 Close:

Friday 02/11/2022 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.

  • 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:

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.


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, 27 of our 58 country indices are up, and 7 are up double digits year-to-date. We see a pickup of new highs in emerging markets as UAW, Thailand, and Indonesia made 5-week closing highs. We see the most strength in Brazil, Chile, and Peru.


Conclusion

Last week saw continued strength in the general commodities space. Hidden below the surface there is strength in international markets. The bond markets continue to sell off while some investors purchase TIPS. In the US, we saw a bounce in small and mid-caps as S&P 500 pure value and dividend stocks continue to show positive gains in 2022.

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