Week of Mar 21 2021

Market Wrap

As of @March 19, 2021

Narratives

There’s not a lot that benefits from a sudden, unruly US rate rise, and the immediate risk is that a disorderly yield jump hurts cyclicals. Did 2020 marked the secular low point for inflation and interest rates? If so, allocation implications are bullish for real assets, commodities, volatility, small caps, value and EAFE/EM stocks - Michael Hartnett, Bank of America

The bond market wasted little time taking Jerome Powell up on his implicit invitation to push US yields higher. Feels like the 10-year running to 2% is the right move now with the US economy tracking ~6% in Q1. As such, secular growth (bond proxy) Nasdaq is being commensurately repriced lower relative to peers with more cyclical value / economic-sensitivity - Nomura

Meeting goals means something different now than it did previously. It's no longer enough to bring inflation to target. The wants to make up for past shortfalls. The dovish interpretation is that at least four participants out of the 11 who forecasted inflation of 2.1% or higher in 2023 saw that as insufficient for a rake hike, a group that likely includes at least part of leadership - Goldman Sachs

While not everyone is prepared to say that the low is in for bond yields or that the four-decade bond bull is officially dead, fiscal-monetary coordination and a shift towards demand-side stimulus and more redistributive policies, at least has the potential to change the game. That's bearish for secular growth shares and other perennial winners from the long-running "low inflation” macro regime - Bank of America

Week Ahead

Next week, flash PMI surveys for the US, UK, Eurozone, Japan and Australia will give an insight about the state of the global economic recovery, while central banks in China, Philippines, Thailand, Switzerland, Mexico and South Africa will be deciding on monetary policy. Other important releases to follow include US final Q4 GDP, durable goods orders, and personal income and outlays; UK unemployment, retail trade and inflation data; and Eurozone and South Korea consumer morale.

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America

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Europe

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Asia

Earnings

With the end of Q121 approaching, of the 10,374 ratings in the S&P 500, 54.9% are Buy ratings, 38.2% are Hold ratings, and 6.9% are Sell ratings. Over the past five years, the average (month-end) percentage of Buy ratings is 51.3%, the average (month-end) percentage of Hold ratings is 42.7%, and the average (month-end) percentage of Sell ratings is 5.9% - FactSet

At the sector level, analysts are most optimistic on the Health Care (61%), Information Technology (61%), and Energy (61%) sectors, as these three sectors have the highest percentages of Buy ratings. On the other hand, analysts are most pessimistic on the Consumer Staples (44%), Real Estate (47%) and Financials (49%) sectors, as these three sectors have the lowest percentages of Buy ratings. The Consumer Staples and Real Estate sectors are also tied for the highest percentage of Hold ratings (46%), while the Consumer Staples and Communication Services sectors are tied for the highest percentage of Sell ratings (10%).

At this time last year, COVID-19 began to spread across the country, and many industries were forced to reduce capacity or close entirely due to social distancing policies implemented to help reduce the spread of the virus. As of today, many of these policies that constricted economic activity have been loosened or eased as vaccinations increase across the country. How have ratings for the S&P 500 at the sector level changed since March of 2020? How did the sectors with the highest and lowest percentages of Buy ratings at this time last year perform in terms of price return during this period?

It is interesting to note that there is little difference in the overall percentage of Buy ratings on stocks in the S&P 500 between now and the end of March 2020. On March 31 (2020), 54.1% of ratings on S&P 500 stocks were Buy ratings, compared to 54.9% today.

Five sectors have seen significant changes in their percentages of Buy ratings since March 2020. The Consumer Discretionary (to 55% from 50%), Utilities (to 54% from 50%), and Financials (to 49% from 46%) sectors have seen the largest increases in their percentages of Buy ratings during this time, while the Energy sector (to 61% from 66%) and Communication Services (to 58% from 62%) sectors have seen the largest decreases in their percentages of Buy ratings.

However, there has been little change at the sector level in terms of ranking by Buy ratings since March 2020. The same four sectors (Health Care, Information Technology, Energy, and Communication Services) that had the highest percentages of Buy ratings at the end of March 2020 also have the highest percentages of Buy ratings today. The same three sectors (Consumer Staples, Financials, and Real Estate) that had the lowest percentages of Buy ratings on March 31, 2020 also have the lowest percentages of Buy ratings today.

How accurate were the sector-level Buy ratings on March 31, 2020 in terms of predicting price performance almost one year later? Overall, the price of the S&P 500 has increased by 51% since March 31, 2020 (to 3915.46 from 2584.59). The four sectors that have seen the largest price increases during the period are the Materials (+73%), Consumer Discretionary (+66%), Financials (+66%), and Energy (+66%) sectors. Of these four sectors, the Energy sector is the only sector that was also ranked in the top four in terms of highest percentage of Buy ratings on March 31, 2020. On the other hand, the three sectors that have seen the smallest price increases during this period are the Utilities (+11%), Consumer Staples (+21%), and Real Estate (+26%). These three sectors also had the lowest percentages of Buy ratings back on March 31, 2020. Thus, at the sector level, analysts were more accurate with their ratings on March 31, 2020 in predicting the bottom performers rather than the top performers in terms of price return almost one year later.

Metric	UpDn	This Week	Prior Week	Comments
Forward 12-mo Estimate	🔵	175.6	174.91	vs. @December 31, 2020 159.02
Forward 12-mo PE	🔴	22	23	vs. @December 31, 2020 26x
Earnings Yield	🔵	4.48	4.44	vs. @December 31, 2020 4.23%
2y Combined Average Growth Rate %	🔵	6	5.5

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FactSet Charts

S&P 500 Futures

Monthly Timeframe (Full Session) - Last week we highlighted the March VPOC holding below February Value and likely remaining so unless the February HI 3959.25 was taken out and held. Taken out it was, but held it was not; and we got reversion to the mean by the week's conclusion. We will continue to monitor the trajectory of LTF value, but as can be seen above, stalled value migration is a byproduct of consolidation.

Weekly Timeframe (Full Session) - 1TFU on the WTF extended for the second consecutive week, but offset by a weak position of close (below WTF Value). Odds favor cessation of 1FTU in the coming week, but we also carry forward a weak 3978.50 (absolute) ATH that traded during ETH in combo with a non-meaningful RTH HI on Friday.

Daily (Split Session) - Selling pressure, likely related to unwinding of hedges (Friday’s Quad-witch OPEX), was apparent into the close. The RTH profile above highlights a possibly incomplete auction to the downside, despite leaving behind negligible excess (L-Period). 3909.00 is the opening pivot for the coming week.

240m Bars (Full-session, 9-weeks) - The above chart looks spans Q420 → Q121. Notice the LTF breakout from 3568.50, and the ascending regression line that has ensued. Secondary Tests have consistently been met with responsive buyers; but having closed below the Volatility Trigger (3930) combined with substantial call expiration on Friday creates the potential condition for continuation of selling. The buying pressure was steadily weakening evidenced by the declining Up Wave Volumes in Pane 3 over the past 2 weeks. That said, last week's Down Waves are nowhere near the amplitude of previously absorbed volume when looking back across a larger timeframe.

Bull vs Bear

This Week

Bulls will seek to re-establish control and attract momentum above 3930 (+0.78%) coinciding with the 3d VWAP and naked WVPOC 3936.00. A significant directional move will require resolution TR 3720.50 → 3959.25 (-4.6% → +1.53%).

Last Week

Bulls will seek to maintain and build momentum and test new highs ideally at or above 4000.00 (1.38%). Strong closing spike favors continuation.

Bears will seek to maintain control below 3900 and ideally break and hold below WLO 3875.00 (-0.63%) and seize the LVN back & fill opportunity that coincides with the midpoint of TR 3720.50 → 3959.25 (3840.00, -1.53%).

Bears will seek contain upward momentum and ideally back & fill the LVN that remains below 3900 (-1.0%). A break and hold below 3860.00 (-2.09%) would create the condition for follow-through selling.

Indicators

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Positioning

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Sentiment

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Optix

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Volatility

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Breadth

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Disclaimer

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Credits