Equities and Commodities are Rising but Bonds and the Dollar Index are Declining

Fig. 1: Intermarket: S&P 500, US Treasuries, US Dollar, Commodities

The S&P 500 ($SPX) is continuing the uptrend that was started in March 2020 following the pandemic induced slide (see the second pane of Fig 1). Other major US equity indices are mostly following its lead.

In April 2020, the commodities, the Reuters/Jefferies CRB Index, also started an uptrend (see the third pane of Fig 1). Along with other markets, the commodities sharply declined at the start of the pandemic even though they were already in a downward move since early 2018. The $CRB index mostly moved sideways from the summer of 2017 to the winter of 2019.

Both – equities and commodities – are not showing any indication that their corresponding uptrends and under any sort of pressure.

The other two – bonds and the Dollar index – are not finding many buyers in the current environment. At the start of the pandemic, the Dollar index, $USD, rose immediately and then declined and then started a downtrend in the spring of 2020 (see the fourth pane of Fig 1). The pandemic reversed its uptrend, which started in early 2018.

The US Treasuries, $USB, were trending up from the third quarter of 2018 and then stalled at the start of the pandemic (see the first pane of Fig. 1). The bonds reversed the trend in the summer of 2020 and are reaching the level that they were in the third quarter of 2019. It is not clear at the moment whether this move is just a reaction or a sustained downtrend.

Equities – Russel 2000 Is Leading The US Equities Highest

Fig. 2: Relative Strength US Index ETFsIntermarket

Fig. 3: Perf Chart – SPY, DIA, QQQ, IWM, IYT

The small caps are leading the US equities higher. Fig. 2 shows the relative strengths of ETFs of major US indices. The S&P 500, $SPY, is performing better than the Dow Jones Industrial Average, $DIA, since early 2019 (see the first pane of Fig 2). Before that, the Industrials mostly out-performed the S&P 500 from late 2015.

The NASDAQ Composite, $QQQ, is doing better than the S&P 500, $SPY, ( see the second pane of Fig 2). For some months – from Q2 2018 to Q3 2019 – their returns were similar but for most of the time since late 2015, the technology-heavy smaller-cap index is outperforming the large-cap index.

Since late spring 2020, the NASDAQ Composite is under-performing the smaller cap Russell 2000, $IWM (see the third pane of Fig. 2). Small caps were under-performing before that. The NASDAQ is also underperforming the transports, $IYT (see the fourth pane of Fig. 2). Their relative strength chart is similar to that of the $QQQ and $IWM.

Russell 2000, $IWM, is out-performing the transports, $IYT, since the Q3 of 2020 (see the fifth pane of Fig. 2). For most of the past five years, the relative strength charts of these two ETFs is quite volatile with frequent changes in the leadership.

Fig. 3 shows the PerfChart (Stockcharts.com) of these five ETFs for the past six months. It shows $IWM to be the strong leader followed by $IYT, $QQQ, $SPY, and $DIA. The transports are also performing quite well but the three are lagging far behind.

Sector Relative Strengths

Fig 4:- XLK, XLF, XLB, XLI, XTL, and XLY

Fig. 5: XLP, XLV, XLU XLE, and XLRE

Fig. 4 and Fig. 5 show the six-month performance of S&P 500 sector ETFs relative to the $SPY. Six S&P sectors – Technology, Financials, Materials, Industrial, Telecom, and Consumer Discretionary (Fig. 4) –  are outperforming the broader ETF. Four S&P sectors – Consumer Staples, Healthcare, Utilities, and Real Estate (Fig. 5) – are underperforming the broader ETF. One sector – Energy – is performing similar to the index after underperforming for many weeks.

Emerging Markets are Leading the Developed World

Fig 6:- Relative Strength – SPY, EEM, and EFA

Fig. 7: Perf Chart – SPY. EEM, and EFA

Fig. 6 and Fig. 7 show the relative strength of the emerging market ETF, $EEM, and the developed market ETFs, $SPY & $EFA.

The S&P 500 had been leading the EAFE (Europe, Australia, and the Far East) ETF, $EFA, before the Q3 of 2020 for many months (see the first pane of Fig. 6). The relative strength has reversed since October 2020 and the $EFA is leading $SPY.

The S&P 500 also led the emerging market from late 2018 to Q2 of 2020. Since then the emerging market, $EEM, is outperforming the $SPY (see the second pane of Fig. 6). The emerging markets have been performing better than the developed market, $EFA, since early 2020 (see the third pane of Fig 6).

The Perf Chart, Fig. 7, shows the last six months’ performance of $EEM and $EFA relative to $SPY. The emerging markets, $EEM, are outperforming the developed markets, and the EAFE markets, $EFA, are doing better than the S&P 500, $SPY.