Inflation Fears Drive Shift to Value

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Commentary Analysis

  • Comments: In the midst of rising inflation expectations, i.e. 10-year breakeven inflation targets climbing to a new 8-year high @ 2.59%, investors are increasingly shifting their preferences to value. The Dow 30 Industrials (DIA) escaped today’s selling almost unscathed. As inflation indicators signal rising risks, tangible assets, e.g. commodities and real estate, are likely to benefit, along with stocks representing sectors in energy, materials and financials.
  • Equities:
    • US Markets: Most notable today was the weakness in the Nasdaq-100 (QQQ) and Russell-2000 (IWM). Both closed below their 20 and 50 day moving averages and indicate potential further deterioration in support levels over the couple weeks, without a major bullish catalyst.
    • Leading Sectors: Consumer Staples (XLP); Utilities (XLU); and Real Estate (XLRE)
    • Lagging Sectors: Technology (XLK); Consumer Discretionary (XLY); and Communications (XLC)
    • Int’l Markets: Weakness continues in Emerging Markets (EEM) and China (FXI) while Latin America 40 (ILF) and Brazil (EWZ) prove to be resilient.
    • Volatility: VIX (VXX) made a new low but closed up on higher volume.
  • Large-Cap Volume Surgers:
    • Peleton (PTON): +4.39% on 204% volume surge
    • Viatris (VTRS): +6.82% on 183% volume surge
    • Coty Int’l (COTY): -12.96% on 149% volume surge
    • Freeport McMoran (FCX) -2.80% on 125% volume surge
    • Beyond Meat (BYND) -3.17% on 119% volume surge
  • Small-Cap Volume Surgers:
    • Peabody Energy Corp (BTU) +15.43% on 361% volume surge
    • Dynavax Technologies (DVAX): -19.47% on 318% volume surge
    • Moneygram Int’l (MGI): +4.23% on 146% volume surge
    • Magnite Int’l (MGNI): -20.31% on 113% volume surge
    • US Steel Corp (X): -1.44% on 119% volume surge
  • Market Moving Events:
    • Economy: n/a.
    • Central Banks / US: Mixed messages from the Federal Reserve are not helping the market either. On the bullish side were Chicago President Evans who favors maintaining stimulus measures as he perceives it will take “quite some time” to recover based upon the recently released and weaker than expected employment report. Offsetting this were Dallas President Kaplan’s hawkish comments alluding to tapering asset purchases “sooner rather than later” due to what he perceives to be “excesses, imbalances and side effects of some of these purchases”.
    • Earnings / Positive Surprises: Viatris (VTRS); Tyson (TSN); Jacobs Engineering Gp (J); and Duke Energy (DUK) exceeded estimates.
    • Earnings / Negative Surprises: Marriott Int’l (MAR); Eversource Energy (ES); Coty Inc (COTY); and Air Products & Chemicals (APD) failed to meet estimates.
  • Bond Rates: The 10-Year Treasury yield closed @ 1.60 (+0.03bps / +1.91%). The 20-Yr+ Treasury ETF (TLT) confirmed a bearish reversal pattern while making a new 7-day low and closing below its 34-day exponential moving average.
  • Currencies: Although the trend for the US Dollar (UUP) is still down, selling has eased and the Euro (FXE) is encountering resistance. Yen (FXY) is consolidating its recent breakout.
  • Cryptocurrencies: This asset class is also proving to be an effective hedge against inflation risks. After last week’s strong advance, Grayscale Bitcoin (GBTC) continues to consolidate near its 34-day EMA. However, yesterday’s break below the 20-day MA suggests further decline ahead. Ethereum (ETHE), on the other hand, is still being driven by the pressure of “FOMO”. Although it closed near the bottom of its trading range, surging volume indicates demand is strong for more upside.
  • Commodities: The bullish outlook for Gold (GLD) and US Oil (USO) remains intact.
  • Real Estate: Trends for Real Estate Index (IYR); Residential (REZ) and Homebuilders (ITB) are bullish and exposure to this asset class should deliver positive results based on the premise of higher inflation.

ETF Daily Market Performance Summary: 10-May-2021

etf daily market summary for stocks, bonds, currencies, cryptocurrencies, commodities, real estate, and equity sectors
Click to enlarge

Market Diary: 10-May-2021

market diary summary for NYSE and Nasdaq exchanges: advancers, decliners, new highs and new lows, plus mega-cap market breadth
(Click table to enlarge)

Covid19 Global Status Update: 7-day Average for top 10 countries

The 7-day average for new infections is contracting globally, but India is still a concern. The US and Europe are steady progressing. Most remarkable has been Turkey Italy, Spain and Germany, which are all vital components in the EU economic recovery.

RankCountry7-day Avg7-day Avg 1 week agoWeekly % Chg
World773,708814911-5.06%
1USA4039550868-20.59%
2India388054378544+2.51%
3Brazil6037160140+0.38%
4France17776721716-18.18%
5Turkey2068833263-37.80%
6Russia81408625-5.62%
7UK21962129+3.15%
8Italy936811371-17.61%
9Spain58527423-21.16%
10Germany1421118301-22.35%

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