Episode 220: Risk-off Areas

In this week’s episode, Ian and Kevin discuss the S&P being flat this week, risk off areas in fixed income, if recent movement in Utilities and Staples contradicts the risk off view, the Japanese Yen and Nikkei, and recent performance of value areas like Financials, Materials, and Industrials.

Transcript

ian-guest559_14_08-30-2024_113005 0:27

Welcome back to the weekly trend podcast. Today is August 30th, 2024. S& P sitting at exactly, well, it was 30 seconds ago. Exactly 5, 600 or now a tidbit below that. Joined today by Kevin Ferrari. And excited to get to discussing which kind of an uneventful week in some areas and some other areas more eventful.

kevin-firari_7_08-30-2024_103008 1:02

Yeah. Really, if you took this week off, you probably wouldn't even have noticed anything,

ian-guest559_14_08-30-2024_113005 1:07

No,

kevin-firari_7_08-30-2024_103008 1:08

last two weeks.

ian-guest559_14_08-30-2024_113005 1:09

and you were saying before this, I mean, a pretty, yeah, really the last two weeks, pretty logical spot. I mean, we had a very strong rally for, I mean, really, what, since. I mean, we bought them at the first part, first week of April, and then ripped higher, you know, down below 5, 400, right back above very quick move. And now we have spent two weeks kind of consolidating and a pretty, a pretty flat week for, you know, Hey, S and P is down. I mean like 20 bits on the week, NASDAQ hit the hardest.

kevin-firari_7_08-30-2024_103008 1:52

Mm

ian-guest559_14_08-30-2024_113005 1:53

And so no surprise, the tech. Was the worst performing sector this week. But some other positives taking place as tech, obviously it's kind of like what it does is going to be, it's going to weigh on the market, but really not that negative. When you look outside that

kevin-firari_7_08-30-2024_103008 2:15

No, I mean, yeah. You're consumer discretionary down quite a bit communication services. I mean, kind of your, you know, areas that were more so leading earlier in the year.

ian-guest559_14_08-30-2024_113005 2:24

mega cap ish financials

kevin-firari_7_08-30-2024_103008 2:25

hmm. But really outside of that, I mean, it's been, you know, decent week, right on like an absolute basis. I mean, financials look really good this week.

ian-guest559_14_08-30-2024_113005 2:33

at 2%, and that's with today being we're flat today, but yeah, it's. We talked about materials, industrials, even healthcare is positive on the week. Dow Jones is positive and hit a fresh all time high this week, which has never, I just read this and I wasn't aware, did you know that there's never been an all time high in a bear market?

kevin-firari_7_08-30-2024_103008 3:03

Hmm.

ian-guest559_14_08-30-2024_113005 3:03

I just read that on Twitter. Fascinating. Can't hit all time highs on the downtrend.

kevin-firari_7_08-30-2024_103008 3:09

Makes sense, huh?

ian-guest559_14_08-30-2024_113005 3:11

What about outside of stocks? Okay, so pretty uneventful week for broad markets, so outside of that, anything worth noting?

kevin-firari_7_08-30-2024_103008 3:24

Ah, I mean, you, at least kind of, you know, last week, maybe a little bit earlier this week, bonds were kind of starting to show some life. So, like, if you look at AGG above 100, kind of a good sign. I mean, it's kind of

ian-guest559_14_08-30-2024_113005 3:37

Yeah.

kevin-firari_7_08-30-2024_103008 3:38

later this week. So, you know, kind of flirting with that 100 level again. TLT, not quite to that point. But I mean, you're still seeing like corporates look pretty good using like LQD, you know, junk bonds still look fine

ian-guest559_14_08-30-2024_113005 3:53

Yeah, I think I'm with you on TLT. I think above 99, I think above 99, 100,

kevin-firari_7_08-30-2024_103008 3:59

Yeah

ian-guest559_14_08-30-2024_113005 4:00

you probably get into some type of uptrend. Now that's still on the back of a monthly chart, which says, you know, if, well, if I flipped it, you know, if we take rates on a monthly chart and say, okay, rates probably going higher over the Coming years, but clearly there's going to be counter trend moves. So could this be the start of one of those maybe

kevin-firari_7_08-30-2024_103008 4:31

could be. Mm hmm. Yeah, I mean, your junk bonds? You're more risk on in that area still seem to be kind of, you know Leading the way like some your lower credit quality stuff or you know sticking with like you're floating rate bonds That don't really have the same interest rate sensitivity. I mean is You You know, the rising rates at least you know, still seem to be kind of the place to be on the fixed income side. So, I mean, a little bit more of the same there. At least, you know, seems to be more intermediate long term basis, but yeah, we'll see on the short term, you know, can AGG stick it? We'll see. I mean, it's tried before, you know, recently here hasn't been able to do it.

ian-guest559_14_08-30-2024_113005 5:10

Definitely a big area. We are rates and bonds coming into kind of Intermediate term decision point about what we're going to do here,

kevin-firari_7_08-30-2024_103008 5:20

Mm. Mm. Mm.

ian-guest559_14_08-30-2024_113005 5:22

I mean stocks versus bonds hasn't I mean that's fallen off and i'm talking, you know, tlt or smp or to your point Junk vs. AGG. Big rebound. Junk by itself looks pretty good. Also kind of one of those relations, like I would put Junk vs. Barclays Agg in the same category as SMP High Beta vs. SMP Low Vol. Where it's like, yeah, great rebound, but we really kind of screwed some things up relationship wise. That we got to fix now and it is It's going to take some Some work. I think it's for me the the high high beta versus low vol You know, we spent basically the whole year in this range Which is fine broad markets have moved higher broke lower kind of come back up to retest it We'll see if it can fix itself We still have an upward sloping 200 day Which tells you you're in an uptrend But yeah, one of those one of the kind of those are kind of my two risk on risk off Measures swear. I'm like, ah, yeah, definitely a good rebound along with stock last week But

kevin-firari_7_08-30-2024_103008 6:40

only that, but talk kind of like more risk on, I mean, like if know, your foreign bonds really aren't doing too bad, you know, like emerging markets, high yield,

ian-guest559_14_08-30-2024_113005 6:47

what are you using for that emhy

kevin-firari_7_08-30-2024_103008 6:50

yep. Looks pretty good. And even like you're, I mean, there's a bunch of different

ian-guest559_14_08-30-2024_113005 6:54

is that I

kevin-firari_7_08-30-2024_103008 6:55

for like your foreign government bonds and things like that. International corporates, I mean, look good. I can't remember. I was looking at that a day or two ago. I can't remember the ticker.

ian-guest559_14_08-30-2024_113005 7:04

Mean emerging market high yield versus j and k Makes me want to own emerging market high yield.

kevin-firari_7_08-30-2024_103008 7:11

Yeah. And if you're telling yourself that, right, I mean, that can't be

ian-guest559_14_08-30-2024_113005 7:14

That can't be the worst thing for us risk on around the world

kevin-firari_7_08-30-2024_103008 7:19

No, and even, I mean, it's not the nicest looking chart in the world, but Chinese bonds using CBON, have been doing pretty well here lately. You know, over the last month or so you know, I mean, I'm not saying that they're necessarily out of the woods yet on like a long term basis, but you're at least seeing them, you know, stop going down, right. You kind of start to appreciate,

ian-guest559_14_08-30-2024_113005 7:40

Hey, look better than long term treasuries.

kevin-firari_7_08-30-2024_103008 7:42

yeah, right. So, I mean, I think it tells you a lot. For sure.

ian-guest559_14_08-30-2024_113005 7:48

Golly, we're gonna have to, I don't know, do you know much about South Korean debt?

kevin-firari_7_08-30-2024_103008 7:52

Mm mm.

ian-guest559_14_08-30-2024_113005 7:53

We might have to learn. We might have to be learning.

kevin-firari_7_08-30-2024_103008 7:55

Might.

ian-guest559_14_08-30-2024_113005 7:56

Emerging market high yield. That is, that is definitely one to keep an eye on.

kevin-firari_7_08-30-2024_103008 8:02

Mm hmm.

ian-guest559_14_08-30-2024_113005 8:03

Good find, Kevin. One thing that I think was interesting development over the last couple weeks is, so, you know, early August, We have the big, oh, what are the big, what are the macro people, the, you know, the Yen carry trade, and Japan, and The things there, so while the Nikkei itself has not recovered again, big bounce back to those 1989 highs But EWJ, which would be kind of the dollar trade weighted version of Japan, already back to new year to date highs. Thought it was all time. We're so we're not a year, we're not at all time highs, but again, they're a year to date highs. We have like everything else that, I mean, really, it was a four day move in Japan, got everyone spooked. And. Like everything else we've talked about on the podcast tonight or today has really Recovered.

kevin-firari_7_08-30-2024_103008 9:11

I mean, it kind of seems like, you know, when you start digging into a lot of the individual stocks and things like that, there's some of these sectors, I mean, a lot of your leaders earlier in the year you know, kind of spring, summer, fall, You know, really kind of paused, sold off, you know, on the S& P, sold off, kind of let everything else catch up and now you're seeing like a lot of the charts just like you're talking about with Japan show that similar look where now they're, you know, rebounding, kind of caught back up and I guess now the question is, right? Are those previous leaders going to kind of now take the lead again? Yeah. Because you know, I think like you were talking about financials before look really good. I mean really the leaders in that sector before kind of like your insurance names and like a lot of your investment managers, brokers,

ian-guest559_14_08-30-2024_113005 9:55

Yeah,

kevin-firari_7_08-30-2024_103008 9:56

you know, like some of your exchanges, things like that. And I mean, you know, you're seeing areas like that start to pick up again. But you're not necessarily just seeing that in financials, you know, it's just one example. I think you're seeing that really across the market as a

ian-guest559_14_08-30-2024_113005 10:08

you said airlines were the second best sub industry this week.

kevin-firari_7_08-30-2024_103008 10:12

Yeah.

ian-guest559_14_08-30-2024_113005 10:13

Did you tell me that before the call?

kevin-firari_7_08-30-2024_103008 10:15

Yeah.

ian-guest559_14_08-30-2024_113005 10:15

Yeah So, I mean, there's your industrials. I know you brought up

kevin-firari_7_08-30-2024_103008 10:21

XLI looks good. Mm hmm.

ian-guest559_14_08-30-2024_113005 10:23

And PPA, I mean, PPA didn't stop.

kevin-firari_7_08-30-2024_103008 10:27

No, that's the thing, aerospace defense was really kind of one of the true constants that really never sold off for the most part.

ian-guest559_14_08-30-2024_113005 10:33

I mean, that's been back at all time highs since, for two weeks. I'm just cruisin

kevin-firari_7_08-30-2024_103008 10:38

hmm. Right.

ian-guest559_14_08-30-2024_113005 10:40

Another one that I would put in that category this week has been a little, flatter, but Home Builders.

kevin-firari_7_08-30-2024_103008 10:50

Mm hmm.

ian-guest559_14_08-30-2024_113005 10:52

Home Builders, one of the strongest ones before, Got hit for sure. I mean, everything got hit, you know, going into early August, kind of that last week, you know, really July 30th. And then the first few days of August, but again right back up to just a couple percent from all time highs,

kevin-firari_7_08-30-2024_103008 11:16

Yep.

ian-guest559_14_08-30-2024_113005 11:17

Gold miners have hung in there.

kevin-firari_7_08-30-2024_103008 11:19

Mm hmm. Yeah, they have. Really even just gold itself, too.

ian-guest559_14_08-30-2024_113005 11:24

Gold has yeah, I mean, gold has had really. Really nice last couple weeks. Relative chart, you know, depending on your time frame. A little I would like a little more from the relative chart on gold. Gold miners holding up well. I think Newmont, which is kind of your big canary in the coal mine, or at least for me. You know, we're getting a little, a little tight up in here, up into this 55 area, but strong.

kevin-firari_7_08-30-2024_103008 11:59

Mm hmm.

ian-guest559_14_08-30-2024_113005 12:00

And VIX, VIX back below 18, which has kind of been a bigger area, at least for 2024. Longer, I mean, really? 18? Over the last couple years. Bigger area, some polarity there for, you know, 14, 15, basically where the 200 day sits right now on VIX.

kevin-firari_7_08-30-2024_103008 12:22

Mm hmm. Right, which, which I think, which, not to beat a dead horse, I guess, necessarily because we've talked about this probably quite a bit, but with, you know, what you would expect seasonally this time of the year, it's probably not too much of a surprise.

ian-guest559_14_08-30-2024_113005 12:32

No,

kevin-firari_7_08-30-2024_103008 12:33

even with just what the SMP is doing, really, just kind of chopping around sideways and consolidating, I mean, makes, makes sense. It's not

ian-guest559_14_08-30-2024_113005 12:41

it's election season. We are getting into September and October of an election year. So yeah, totally agree. More likely chance that things get weird. I mean, we're still not to all time highs on S and P. We've got a gap it from August 14th into the 15th. So gap sitting at 54 70. Does that need to be filled? Are we, you know? Yeah, I mean, we, Seasonality wise, I mean, we've got time to build out a range for November and I'm not saying it's going to be fun or pretty, but it's definitely, again, to Kevin's point, we have talked about it. We, we were seasonality. They changed candidates in the middle of the night. So duh, now are we going to revert back to, you know, this, the seasonality where we have no incumbent, right? That's the two and it looks like I, you know, we had this discussion just two or three weeks ago, I think, Kevin,

kevin-firari_7_08-30-2024_103008 13:59

Mm

ian-guest559_14_08-30-2024_113005 13:59

it kind of looks like the market might want to. Now we get to all time highs. We're sitting at 5, 700 clearly, maybe not range bound for the remainder of summer and fall, but. You could definitely, I could see us early mid November breaking above 56, 50, 5700 after another 6 7 percent correction, 8 percent

kevin-firari_7_08-30-2024_103008 14:28

hmm.

ian-guest559_14_08-30-2024_113005 14:28

correction.

kevin-firari_7_08-30-2024_103008 14:29

Yep. Yeah, I don't think you could be too shocked about that. And I wonder, what do you think about the way, you know, like, utilities and staples look now? I mean, utilities? Like, that's about as clean and consistent almost as a, you know, move since essentially July that I think you can probably get. I mean, it's just been kind of

ian-guest559_14_08-30-2024_113005 14:50

Yeah, you want to talk about things that didn't, I mean, they literally, so they got hit while most everything else was in a 4 5 day drawdown already going into that Monday, August 5th. They got hit one day and then just kept going.

kevin-firari_7_08-30-2024_103008 15:06

Didn't really phase them.

ian-guest559_14_08-30-2024_113005 15:08

And maybe we do. Yeah, it's, you know, I think so many people were worried about utilities especially March and April, March, April, May, the route of strength being a warning sign. And to me, utilities, utilities going down on an absolute basis and their relative chart moving up is a warning sign

kevin-firari_7_08-30-2024_103008 15:33

right?

ian-guest559_14_08-30-2024_113005 15:34

them, but the absolute chart and relative chart going up is. Again, I just I don't take it as a warning sign. Is it fun? Would I rather buy things like Mid cap software and you know higher beta things. Yeah, that'd be way cooler than Buying gas utilities from Delaware.

kevin-firari_7_08-30-2024_103008 15:58

Yeah.

ian-guest559_14_08-30-2024_113005 15:59

W E I R, you know, no offense to WEC and your electric utilities. They're just not as fun. But yeah, maybe, maybe those are the leaders that they're what they're the only sector above a relative 200 day still,

kevin-firari_7_08-30-2024_103008 16:13

They were, yeah,

ian-guest559_14_08-30-2024_113005 16:14

or it's fine. No financials are back.

kevin-firari_7_08-30-2024_103008 16:16

Right.

ian-guest559_14_08-30-2024_113005 16:17

Financials are back. Nice recovery from financials,

kevin-firari_7_08-30-2024_103008 16:21

Man, I mean, staples here more recently look pretty good. Real estate's still hanging in there

ian-guest559_14_08-30-2024_113005 16:26

real estate. That's real estate. XLRE above a relative 200 day. I know it's not fun. I know it's not exciting, but the potential continues to grow that these might be want to be the areas you're Involved in

kevin-firari_7_08-30-2024_103008 16:45

But I think that's kind of the thing, though, too, right? Like, the relative performance is pretty short term in nature at this point, right? I mean, you're seeing it maybe over, you know, a couple weeks to a month. Like, it's not like a lot of these long term relative charts. Like, the picture's really changed, I mean, by any

ian-guest559_14_08-30-2024_113005 17:02

now, I mean a lot of these are downward sloping relative 200 days

kevin-firari_7_08-30-2024_103008 17:06

All right,

ian-guest559_14_08-30-2024_113005 17:07

and you want to get excited but then right, it's like a bad relationship and you look at all the times you've been lied to and teased and it's you know, some of these are just Count. I mean, you got to kind of play, you got to assume that they're a counter trend move.

kevin-firari_7_08-30-2024_103008 17:25

Mm hmm

ian-guest559_14_08-30-2024_113005 17:26

So then do we go back to, I know you kind of, you and you had some thoughts on this about, you know, do we see broad strength or from a relative basis, whether they go up or down, do we see relative strength from these other areas? And then we get to November and it's

kevin-firari_7_08-30-2024_103008 17:44

kind of more. So what you saw the first half of

ian-guest559_14_08-30-2024_113005 17:46

yeah, back to our typical

kevin-firari_7_08-30-2024_103008 17:47

to

ian-guest559_14_08-30-2024_113005 17:48

ammo over the last two to three years of large Well,

kevin-firari_7_08-30-2024_103008 17:53

again. Yeah. Yeah, I guess time will tell right but I mean, I definitely would not be shocked Really by any means. I

ian-guest559_14_08-30-2024_113005 18:01

and they've tried this with, you know, I mean, we talked about, you know, equal weight, equal weight S& P. Also, I think all time highs this week. Yes. Actually, last Friday. Actually, I take that back. All time closing highs were last Wednesday. But yeah, held up well this week. And they've done this. They've done this on a relative basis. You know, they did it Q4 2023.

kevin-firari_7_08-30-2024_103008 18:31

Three. Yep But I mean, I think even this time right like like if you look at RSP to SPX when you kind of look at those What would that be 20? Like your 2020 lows, kind of

ian-guest559_14_08-30-2024_113005 18:43

Yes.

kevin-firari_7_08-30-2024_103008 18:43

barely moving into 21. Like they couldn't even reclaim those this time.

ian-guest559_14_08-30-2024_113005 18:47

Ben, so that's your other where is it just some type of polarity counter trend move

kevin-firari_7_08-30-2024_103008 18:52

Mm hmm.

ian-guest559_14_08-30-2024_113005 18:54

where to your point we went back to a logical spot and because these relationships move so quickly to the downside you get these kind of rubber band snapbacks, but

kevin-firari_7_08-30-2024_103008 19:06

hmm.

ian-guest559_14_08-30-2024_113005 19:07

long term they don't don't do anything.

kevin-firari_7_08-30-2024_103008 19:12

Right. And I think especially that chart with Equal Aid S& P I think is really telling, kind of more so to thought, right, of do you see once we get closer to the election and kind of some of these seasonal periods and stuff start to really line up where you start seeing your technology, your communication services, maybe a little bit of discretionary pick back up again, like we saw before, and just kind of take off. Mm hmm. I mean, a lot of these things are happening at levels you would expect, and kind of just have that look like they might chop around here a little bit for a while, you know, even on a relative basis. Right? Mm

ian-guest559_14_08-30-2024_113005 19:45

Well and while we, you know, we spend a hundred percent of our time worried about the technicals on the charts You And that's what we choose to pay attention to. It doesn't, I think it's fair. I mean, there's, there are hundreds of billions, trillions of dollars traded around, I, I don't know what's going to happen in November and I'd rather just be in Apple because I know Apple's not going bankrupt anytime soon. Like that's a real thought out there. And yeah, I mean, if you. You know, that's I get it. Do I agree with it? No, because we're hardcore technicians

kevin-firari_7_08-30-2024_103008 20:25

hmm.

ian-guest559_14_08-30-2024_113005 20:26

But I still think it's realized that lots of money market moving institutional money is managed based on Yeah, what we've just talked about they're not worried about they haven't looked at a relative chart in 25 years

kevin-firari_7_08-30-2024_103008 20:45

Mm

ian-guest559_14_08-30-2024_113005 20:46

But are they worried about the election or what If so and so gets elected what it means for you know, whatever group of stocks. Yeah. All right, Kevin I know you have Some important work to do got a client education here in a few minutes So I want to make sure that you are off in time for that Is there anything you would like to leave our audience with today

kevin-firari_7_08-30-2024_103008 21:09

No, I think we covered the high points. I mean, I mean, in a large part, really, it's just kind of more so the same we've been seeing here for the couple weeks, right?

ian-guest559_14_08-30-2024_113005 21:19

Hanging out pretty practical consolidation? I'm, I would rather see us go sideways for two weeks than give it all back. So

kevin-firari_7_08-30-2024_103008 21:27

For sure.

ian-guest559_14_08-30-2024_113005 21:28

Alrighty, well, that is it for this week, and we wish you all a great Labor Day weekend.

kevin-firari_7_08-30-2024_103008 21:33

Yeah, for sure. Have a good weekend. Enjoy the extra day on Monday.

ian-guest559_14_08-30-2024_113005 21:37

I know I will be enjoying it.

kevin-firari_7_08-30-2024_103008 21:39

Absolutely.