Relative performance

After some of the recent carnage in the Healthcare space we wanted to look at it, as well as the other sectors in the SPX, on a relative performance basis. What we found were some interesting levels. First off, YTD performance:

We use ETFs for the calculations.

In the below chart we rank which sectors are closest to their 52-week high, relative to the SPY ETF. No surprise here with Technology leading the way, and of course Healthcare, the catalyst for this exercise, being the laggard.

They are ranked by the 4^th column from the right, % away from its 52-week high.

The more dramatic way to look at it is through charts.

Technology:

Healthcare:

Considering where so many think power demand will go, we thought the Utility performance was of interest as well:

Not to mention Materials:

The bottom line is that it is possible plenty of rotation can occur inside the Index itself and maybe there are some opportunities within those beaten down sectors?


Lonely at the top

We have seen quite a few versions of the following chart pop up this week, nothing new to many investors but we thought it might be worth a deeper dive.

Longer term the return performance is rather stunning.

43% average return vs 11.3%

But will this outperformance begin to peter out soon?

The color that accompanied the above chart:

“The S&P 493 – that’s the S&P 500 excl “Magnificent 7” – is expected to deliver just 2-3% net income growth in Q2, Q3, and Q4. That’s slower than inflation, meaning most of the market is barely growing in real terms. Measured against this, US equities are quite expensive.”

US Dollar

Since the beginning of the year, the US Dollar Index, the DXY, has been under pressure.

Is the Administration’s tariff policy the protagonist here? Hard to say exactly, but when looking at broad market performance this year one could draw that conclusion.

When comparing Global performance ex US against the US it certainly seems to be the case.

The MSCI Ex US Index is outperforming the SPX by a considerable margin.

The disparity is even greater if we look at the even weighted SPX, the SPW.

Which brings us back to the DXY chart. If it breaks down any more will Gold break out?

Post Election Years

The following chart caught our eye this week as well.

In post-election years, U.S. stocks typically peak around early August, go through seasonal turbulence, bottom out by late October, and rally toward the end of the year.

But how does this thesis jive with recent, 15-year, seasonality?

Turns out August and September are not so hot.

And volatility picks up as well.

But seasonal performance does rebound into year end as well as the volatility going lower. Time to weather the storm.

Rent

Cost of Rent

We have addressed the impact of “shelter” to the CPI and therefore inflation related concerns before. As we have stated before, 36+% of the CPI is derived from Shelter, so housing costs can easily sway that headline inflation number. How they are calculated can be up for debate, or at least the timing on the collection of the data surrounding it.

The Cleveland Federal Reserve has a couple of metrics of interest surrounding the cost of shelter, the New Tenant Repeat Rent Index and the All Tenant Repeat Rent Index. Compared to pre covid both Cleveland metrics are now below those levels, while the Shelter metric in the CPI is not. Is it just a matter of time before that anomaly rectifies itself?

Friendly Reminder

Bear markets pale in comparison to bull markets, both in market movement and duration. A good reminder for every long-term investor. 

Have a great weekend!

Best,

Meraki trading team