Author: Kenley Scott

Key points:

Out of 436 sectors, just nine are positive over the past four weeks, four are positive over eight weeks, five are positive over 13 weeks, 29 are positive over 26 weeks, and 31 are positive over the past year.

• Of the 31 that are positive over a year, 17 are from developed markets and 14 are from emerging markets, none are from the U.S.
• Several countries, including Brazil, Switzerland, Denmark, and China, have two or more sectors that are positive over the past year, but no market has more than three.
• Just six sectors are represented in the group that are positive over one year: Health Care (15), Consumer Staple (5), Retail (5), Technology (4), Utility (1), and Energy (1).

Most represented in terms of strong individual names are:

• Health Care (CN): Chongqing Zhifei Bilg. Prds ( CZB.CN ), Changchun High New Tech ( CTE.CN ), Jiangsu Hengrui Medicine ( JHM.CN ), Topchoice Medical ( ZTI.CN )

• Health Care (MY): Top Glove ( TOGL.MY ), Hartalega ( HARA.MY ), Kossan Rubber ( KOSS.MY ), Supermax ( UPER.MY )
• Health Care (DK): Ambu ( AMB.DK ), Veloxis ( VEL.DK ), Coloplast ( COL.DK ), Novo ( NON.DK )
• Consumer Staple (SE): Enzymatica ( ENZY.SE ), Swedish Match ( SWMA.SE ), Essity ( ESSI.SE )
• Technology (PL): CD Project Red ( CDR.PL ), Ten Square ( TEQ.PL ), Asseco Poland ( SFB.PL ).

Key points:

• The current market is still tracking most closely with the 1987/1929 examples.
• Huge rally (24% from Monday lows to Thursday highs) is rare in a bear market.
  • Four prior examples of >24% in one leg, since 1900, most recently in October 2008.
• This size rally or greater has started nine bull markets.
• Key difference in bull/bear case is the subsequent down leg. In bears, the average down leg was 18%, in bulls it was just 9%.

Key points:

• The third longest bull market (Dow Industrials, 1900-2020) has ended. We use a 25% threshold as the beginning of a bear market, which was reached this Thursday.
• Bear markets have lasted an average of around a year-and-a-half with depth of 42%. The shortest bear market was in 1987, which lasted just eight weeks.

Key points:

• The yield curve (10-year minus three-month), which was inverted for the past two weeks, has steepened rapidly this week.
• This is not a bullish signal, as the cause was an even faster falling short end of the curve. The three-month fell from 1.56% the week ended February 21 to 0.62% this Thursday, March 5.
• In past examples of curve inversions followed by a steepening (1989-1990, 2000-2001, 2007), while not immediately dire for equities, were not a positive development for forward six-month S&P 500 returns. Also, in two cases (2000-2001, 2007), it preceded major bear markets, albeit further than six months out.

Key points:

• The VIX volatility index reached nearly 50 this week and ended with a weekly gain of more than 150%. It has only been above 50 once this decade, in early 2018, as the market similarly fell quickly from highs.
• While the gauge suggest an extremely oversold market, if we look back at past recent spikes (late 2014/early 2015 and early 2018), it also suggest that the beginning of a long-term consolidation may be the most likely scenario.

Key points:

• U.S. dollar strength is weighing on dollar-denominated country/region ETFs. U.S. indices are sharply outperforming most, both year-to-date and over the past year.
• The U.S. dollar, which broke to more than two-year highs this week, is nearing the top of a upward-trending channel line, which it has traded in for the past 18 months. A pause in the runup and/or some consolidation of recent gains is likely and would be welcome for U.S. investors looking for good relative international bets.

Key points:

• Technology is leading all U.S. sectors by at least 10% over the past six months. Further, because of its increased weighting (now nearly 30% of the S&P 500), the S&P 500 as well as the Nasdaq are leading the 10 other sectors over six months.
• Compared with what is usually a balance of outperforming and underperforming sectors on our Rotation Graph, currently only Technology and Health Care are on the outperforming right side.
• The spread between Tech and Energy has reached an incredible +50% in favor of Tech over the past year. This has only been larger in two periods historically (1983, 1998-1999). Reversions have not worked in recent months, so we would wait for a signal of a reversal of this relationship, but would be wary of its extremely extended nature.
• Versus Transports, Technology is a 30% leader over one year. This has been more extreme in four periods, most recently in 1998-1999.