The Lead-Lag Report: A Warning for New Year Bears
New Year bears may be in trouble given that various intermarket trends favor bullish behavior in risk assets. For the bulls, the trend remains your friend.
Now the difficulty with those warnings is that they were not specific.
--Lee H. Hamilton
Below is an assessment of the performance of some of the most important sectors and asset classes relative to each other, with an interpretation of what underlying market dynamics may be signaling about the future direction of risk-taking by investors. The below charts are all price ratios which show the underlying trend of the numerator relative to the denominator. A rising price ratio means the numerator is outperforming (up more/down less) the denominator.
For a full version of the Lead-Lag Report, click here.
LEADERS: FINANCIALS RALLY ON
Financials (NYSEARCA:XLF) – Breakout Coming?
Comments: After stalling in November, Financials are beginning to meaningfully outperform again. A near-term breakout of ratio resistance would be bullish and consistent with the move out of low beta into high beta areas of the market. All year financials have been key to the macro reflation theme, and that very much continues.
Europe, Australasia, and the Far East (NYSEARCA:EFA) – Wowzers on Outperformance
Comments: Developed markets continue to outperform the US. And the trend remains intact. The ratio has now nearly reversed all of the weakness that occurred in the first half of the year, and strength remains a bullish sign for risk sentiment.
Treasury Inflation Protected Securities (NYSEARCA:IPE) – Reflation?
Comments: The IPE/TENZ (NYSEARCA:TENZ) price ratio is one way of seeing if inflation expectations are rising or falling within the bond market. When the ratio is trending higher, it means bets are occurring on rising prices ahead. Note that a very real trend higher appears to now be asserting itself, which is bullish for risk assets.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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