Posted on by The Daily Shot Editor: Lev Borodovsky

Small caps have given up their year-to-date outperformance

The Daily Shot: 11-May-21
• Equities
• Credit
• Rates
• Energy
• Commodities
• Cryptocurrency
• Emerging Markets
• China
• The Eurozone
• The United Kingdom
• Canada
• The United States
• Global Developments
• Food for Thought

 

Equities

1. Tech stocks have widened their underperformance, with the Nasdaq 100 losing over 4% in the last few days.
 

 

 
The Nasdaq’s breadth has diverged from the S&P 500 and the Dow.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
Here are some sector trends over the past five business days.
 
– Tech and semiconductors:
 

 

 
– Communication Services:
 

 
– Consumer Discretionary:
 

 
– Biotech:
 

 
– Consumer Staples:
 

 
• Reflation bets continue to outperform.
 
– Industrials:
 

 
– Transportation:
 

 
– Energy:
 

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2. Speculative stocks remain under pressure. Below is the year-to-date performance.
 
• Ark Innovation:
 

 
• Nonprofitable tech:
 

 
• Post-IPO stocks:
 

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3. Stocks widely held by hedge funds (long positions) are suddenly underperforming. Some market participants suggested that tighter prime brokerage limits (post-Archegos) have contributed to this trend.
 

 
4. Small caps have given up their year-to-date outperformance.
 

 
Below are some additional equity factor performance trends (year-to-date).
 
– High-dividend stocks:
 

 
– Momentum:
 

 
– Value vs. growth:
 

 
• The correlation between value and growth factors plunged recently. The last time that happened was in the early phase of the dot-com crash.
 
Source: @Not_Jim_Cramer  
 
• Net flows continue to favor high beta over low volatility stocks.
 
Source: MarketDesk Research  
 
• Flows into momentum ETFs weakened over the past six months.
 
Source: MarketDesk Research  

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5. Dry-bulk shipping companies’ shares continue to surge.
 

 
Source: @financialtimes   Read full article  

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6. BofA’s sentiment index shows the market pushing into “extreme bullishness” territory.
 
Source: BofA Global Research  
 
7. US and European market breadth of earnings beats has been near record highs.
 
Source: Deutsche Bank Research  
 
The Citi global earnings revisions index (analysts’ upgrades vs. downgrades) hit a new record.
 
h/t Cormac Mullen   

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8. Finally, this chart shows corporate pension funds’ debt and equity allocations since 2005.
 
Source: @BloombergQuint   Read full article  

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Credit

1. US business lending has been weak compared to the post-recession average.
 
Source: Variant Perception  
 
Banks have started easing lending standards for business credit this year.
 
Source: Federal Reserve Board  

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2. S&P 500 corporate leverage is coming off the highs but remains elevated.
 
Source: Mizuho Securities USA  

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Rates

1. Market-based inflation expectations keep grinding higher.
 

 
However, the long end of the inflation swap curve remains relatively well anchored. The market expects the Fed to get inflation under control over the long run.
 
Source: Piper Sandler   

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2. The copper-to-gold ratio and Treasury yields generally don’t diverge for very long. Something will have to give.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Related to the above, the 10-year Treasury yield has declined over the past month while the Bloomberg economic surprise index continued to rise.
 
Source: Morgan Stanley Research  

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3. Treasury outflows moderated in April.
 
Source: Deutsche Bank Research  
 
4. Adding Treasuries to an equities portfolio remains an effective hedge (reducing volatility).
 
Source: Cornerstone Macro  

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Energy

1. US retail gasoline prices ticked higher in response to the Colonial Pipeline situation. But the overall market reaction has been muted.
 

 
2. Brent is holding resistance at $70/bbl.
 

 
3. Jet fuel demand is increasing as mobility improves.
 
Source: Capital Economics  
 
4. Will the number of US gas rigs pick up as natural gas prices recover?
 
Source: Capital Economics  
 
5. Clean energy stocks are down sharply this year.
 

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Commodities

1. US grains are off the highs. Improving weather conditions in parts of the world helped alleviate some of the supply concerns.
 

 
US drought conditions have been easing.
 
Source: @kannbwx  

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2. Will we see chlorine hoarding this summer?
 
Source: HowStuffWorks   Read full article  
 

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Cryptocurrency

1. The cost of hedging ether for a 20%+ fall over the next three months has only seen a minor increase.
 
Source: @skewdotcom  
 
2. Ether’s market cap relative to bitcoin is rapidly approaching 50%. 
 
Source: @skewdotcom  
 
3. The total value locked in decentralized finance (DeFi) protocols running on the Ethereum blockchain is approaching $60 billion.
 
Source: @skewdotcom  
 
4. Bitcoin mining electricity usage is now estimated to be higher than the power consumption of Sweden and about half of the electricity used in the UK.
 
Source: CCAF  
 
With a substantial portion of bitcoin mining taking place in China, the cryptocurrency’s rapidly rising demand for power contributes to higher thermal coal prices.
 

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Emerging Markets

1. The Philippine Q1 GDP growth was weaker than expected.
 

 
Credit continues to contract.
 

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2. Russia’s softer-than-expected inflation print was driven by food items. Price gains in other sectors continue to climb.
 
Source: ING  
 
3. Below is Citigroup’s EM inflation surprise index.
 
Source: @markets   Read full article  
 
4. Here are the COVID trends across India’s cities.
 
Source: Reuters   Read full article  
 
5. The decline in China’s social financing points to widening EM corporate credit spreads.
 
Source: BCA Research  

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China

1. Consumer inflation continues to recover.
 

 

 
And there are more gains ahead.
 
Source: Piper Sandler   
 
2. The PPI surprised to the upside …
 

 
… due to surging industrial commodity prices.
 

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3. Traders remain upbeat on the yuan (negative on the US dollar).
 
h/t John Liu  

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The Eurozone

1. The Sentix Investor Confidence index is surging, pointing to further improvements in economic activity.
 

 
2. French industrial confidence is at the highest level in a decade.
 

 
3. Germany’s Greens continue to poll well.
 
Source: @financialtimes   Read full article  
 
4. The US-Eurozone yield differentials point to further upside for European shares.
 
Source: Pantheon Macroeconomics  

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The United Kingdom

1. The pound is approaching a multi-year high vs. USD.
 

 
Traders are not worried about the Scottish election news.
 
Source: Reuters   Read full article  
 
Source: Pantheon Macroeconomics  

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2. Construction activity has been robust.
 

 
3. Markets expect the BOE will be the next G10 central bank to turn hawkish.
 
Source: Morgan Stanley Research  

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Canada

The loonie hit a multi-year high vs. the US dollar.
 

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The United States

1. Let’s begin with housing.
• Mortgage rates continue to drift lower.
 

 
• Mortgage delinquencies are retreating from the recent highs.
 

 
Foreclosures hit a multi-decade low.
 

 
• Non-bank lenders’ share prices suggest that the mortgage boom is over.
 
Source: @WSJ   Read full article  
 
• Housing inventories remain extraordinarily low.
 

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2. Next, we have some updates on the labor market.
 
• Employment-to-population ratio:
 

 
• Government employment:
 
Source: Deutsche Bank Research  
 
• Delivery industry job losses last month:
 
Source: @axios   Read full article  
 
• Nursing home employment:
 
  Further reading  

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3. Here are some updates on inflation.
 
• ANZ’s core CPI forecast:
 
Source: ANZ Research  
 
• Nomura’s core PCE forecast:
 
Source: Nomura Securities  
 
• Nomura’s estimate for the April core CPI change (month-over-month):
 
Source: Nomura Securities  
 
• Google search activity for “inflation”:
 
Source: Google Trends  

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4. US loan-to-deposit ratio hit a new low as the Fed’s securities purchases boost bank deposits.
 

 
5. Business applications remain highly elevated.
 

 
6. US financial conditions have been exceptionally accommodative.
 

 
7. US businesses are increasingly upbeat. The Evercore ISI Company Survey hit the highest level since 2000.
 
Source: Evercore ISI  
 
8. US consumers are getting out and spending.
 
Source: Arbor Research & Trading  

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Global Developments

1. This scatterplot shows projected growth vs. interest rates in advanced economies.
 
Source: IMF   Read full article  
 
2. Which assets perform best during sustained periods of high inflation?
 
Source: World Gold Council  
 
3. Generally, shadow rate differentials do a better job explaining variation in currency movements than nominal rate differentials, according to Morgan Stanley.
 
Source: Morgan Stanley Research  
 
4. Finally, we have the employment recovery from pre-pandemic levels.
 
Source: Scotiabank Economics  

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Food for Thought

1. What’s easy and difficult with remote work?
 
Source: Prudential Financial  
 
2. Corporate vs. labor share of US federal tax revenue:
 
Source: The US Treasury   Read full article  
 
3. Best-paying occupations:
 
Source: @howmuch_net   Read full article  
 
4. Patents per 1,000 persons, by state:
 
Source: St. Louis Fed   Read full article  
 
5. Common types of cybercrime:
 
Source: Statista  
 
6. The spread of feral pigs across the US:
 
Source: National Geographic   Read full article  
 
7. Kyoto cherry blossoms start day (each year):
 
Source: Datagraver.com   Read full article  
 
8. US refugee resettlement:
 
Source: The Economist   Read full article  
 
9. Vaccinations by state:
 
Source: KFF   Read full article  
 
10. What is the Gulf Stream?
 
Source: @financialtimes   Read full article  

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