Euclid Investment Advisory Blog

Review & Analysis at Close May 3, 2021

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Things Change: April was a month of reversals. From last October to March 8 of this year, Large Cap Value led Large Cap Growth. From March 8th to April 26, Large Cap Growth led Large Cap Value. Since April 26, Large Cap Value is leading Large Cap Growth. Large Cap Growth has shown an inverse correlation with US Treasury Yields which reversed and is now rising. Large Cap Value now shows a positive correlation with rising US Treasury Yields. (Bond prices fall as yield rise).

April was the month in which investors struggled between two trends: strong economic growth in the US and increasing Covid-19 cases elsewhere that can impact a global recovery. Also, there are signs of weakness in China's manufacturing sector. Disruptions in the global supply system have already led to shortage of key parts such as semiconductors. This, plus all the stimulus checks are both increasing concerns for rising inflation.

Earnings reports have been great, leading to higher expectations for future quarters - which will make them harder to beat. Once the ultra-cheap money dries up, large cap growth stocks could struggle to dominate the market. Our indicators have US Treasury yields rising, albeit with short term pullbacks in rates.

Equities

All US equity indices, Europe remain strategically Bullish. Small cap Relative Strength trend vs. S&P 500 is down. Emerging Markets weakened. China now a concern - watch.

  • Equity Styles: Large Cap Growth's one-month strength vs. Large Cap Value has reversed! Mid-caps gaining strength vs. large caps.


  • Ranked Sectors: Trend leaders - Energy, Transportation Industry Group, Financials, Materials Industrials; Laggards - Tech, Health Care, Consumer Staples, Utilities.

Interest Rates

Decline of 30-year US Treasury Bond and 10-year Note Yields may be ending, nearing rising Long Term trend lines, 2yr Note Yield inching up. Yield curve spread narrowed.

Currencies

Australian Dollar, Euro, British Pound all weakened in Bullish trends; Yen is Bearish. Gold, after base-building since March 8, is Bullish on early buy signal.

The US Dollar reversed again in one month from Bearish to Bull alert.  From March 31 '21 high of 93.47 it fell to low of 90.39 on Apr 29 and hit high of 91.39 today.

 

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