Long-term Treasury ETFs saw record inflows leading up to the September FOMC meeting. Yields failed to move lower and are rising sharply today. Some investors had already begun to lose faith before today’s move. The chart below shows 5-day net flows swung from +$1.9 billion on September 13 to -$519 million as of September 26.
Today’s losses might shake out a few more investors. The drop means all new inflows from August 17 on are now seeing losses. The price on the chart is as of 2pm eastern on September 27.
As the chart below shows, shortly after the Brexit vote last year both the Stoxx Europe 600 (red line) and the S&P 500 (blue line) fell sharply. After that initial fall, they have advanced 11.34% and 18.29%, respectively.
The MSCI World Stock Indices are all also up after initially falling. The MSCI World Index (blue line below) is up 20% while the MSCI Emerging Market Index (red line below) is up 33.45%.
European stocks have followed a similar pattern. However, the U.K. (green line below) lags the rest of the countries in Europe, up just 9.32% since the Brexit vote.
Use the interactive chart below to view returns for all the MSCI stock indices.
The Bloomberg Treasury Index (blue line below) is down slightly (-0.05%) since the Brexit vote.
The Bloomberg High Yield Index (blue line below) is up 14.34% since the Brexit vote.
The Bloomberg Investment Grade Index (black line below) is up 4.50% since Brexit.
Use the interactive chart below to view additional bond total returns.
The Bloomberg Commodity Index is down 3.27% since the Brexit vote. The Bloomberg Industrial Metals sub-index leads the commodity sub-indices, up 30.29%
The Bloomberg Energy Index (blue line below) is down 7.19% since the Brexit vote.
Use the interactive chart below to view any of the commodity sub-groups.
The Federal Reserve recently updated its Flow of Funds data through Q2 2017. Below we highlight some of the data covering the equity markets. Our complete collection of charts can be found here.
The Federal Reserve recently updated its Flow of Funds data through Q2 2017. Below we highlight some of the data covering the real estate markets. Our complete collection of charts can be found here.
We have aggregated a series of metrics assessing business innovation, regulatory environment, energy access, and renewable energies. Data sources range from The World Bank to mining social media and search trends.
Higher index values indicate better conditions for economic growth in the new world of technology and renewables.
A decent year in stocks. As the table below shows, the stock market is having a decent year.
Large cap stocks leading the way. As the next chart shows, large cap stocks (blue) are leading the way as small cap stocks (red) lag badly.
Market Cap weighted beats equal weight. Another way to show that large capitalized stocks are powering the overall market higher is the next chart. It shows the S&P 500 stocks market cap weighted (blue) and equal-weighted (orange). It is unusual for market cap to outperform equal weight by this degree.
Growth beats value. The chart below shows the S&P 500 pure growth (orange) and pure value (blue). “Pure” means the S&P 500 universe is out into one of these two groups. Growth is dominated by large capitalization technology stocks (i.e., FAANMG) which explain why pure growth is handily outperforming.
The best and worst sectors. The S&P 500 has 11 sectors. The two best (info tech and healthcare) and the two worst (energy and telecom) are shown below.
The most positive and negative influences on the S&P 500. The S&P also has 11 “x” sector indices. These are indices that exclude a specific sector. We show the two best and worst x-sectors below.
This is useful as it shows how much a sector influences the overall S&P 500 (by subtracting the “x sector from the overall S&P 500 in blue). So x-energy is up 12.93% versus 11.05% for the overall S&P 500. This means that the energy sector dragged down the overall S&P 500 1.88%. Conversely, x-info tech is up 8.76% against 11.05% for the overall S&P 500. This means the info tech sector has pushed up the overall S&P 500 2.29%.
The interactive chart below can be used to view the total returns for any or all of the 34 indexes provided under the “select an index” dropdown menu. The date range can be adjusted at the bottom of the chart.
Bitcoin continues to fascinate observers and frustrate some owners with its exceptionally high volatility in recent weeks. Now back above $2000, Bitcoin has fought off two sharp declines since the end of May.
One contributor to higher volatility is the dramatic fall in volume after the regulatory intervention by the Peoples Bank of China. See the second tab in the story point below. Volume fell by more than 90% and has not recovered.
If you click to the third tab you can see the share of volume by currency. The USD has been slowly gaining share since the intervention but the CNY still accounts for the 2nd largest share of volume followed by EUR and JPY.
The chart below shows various tenors of interest rates since the initial FOMC hike on December 17, 2015. 10-year yields are almost exactly where they were prior to this hike. 30-year yields are actually lower over this time period.
At the same time, yields on the short end of the curve have marched much higher. A look at 3-month T-bills shows yields have shot up 84 basis points.
The flattening of the yield curve was a topic of a recent Conference Call.
The Federal Funds market is showing no signs of reviving. The Fed still targets the federal fund’s rate. They do this by using tools like fixed rate reverse repos and Interest on Excess Reserves (IOER). This suggests they think it will return some day. But as the chart below shows, this market’s volume is still down 90% from its peak and still bumping around a 40 year low. It is showing no signs of reviving. Should the Fed consider abandoning this target for another interest rate benchmark?
Measuring Political Risk. The Economist Intelligent Unit compiles Political Risk measures for 132 countries at last count. The next chart shows the 10 countries with the lowest political risk. Pretty standard stuff (Denmark then Luxembourg are the lowest).
The next chart shows the 10 countries with the highest political risk. Britain is on this list! Right above it is the Congo and Iraq. Right below it is Cambodia and El Salvador.
The reason is understandable, Brexit. But Britain with a higher risk that Cambodia? Similar to the Congo? We would argue this rating is more about the “intellectuals” at The Economist making a political statement about their disapproval of Brexit more than an honest assessment of Britain’s actual political risk.
Using the interactive chart below, you can view the political risk for any country over any period you choose.
How safe is Trump? The bettors are giving him much better than a 50% probability of stay in office until the end of next year.
The blue line below shows a 50-day moving average of the total trading volume in actual high-yield bonds as measured by TRACE. In the 50 days ending July 19, $7.66B of high yield bonds traded on an average day.
The green line shows the 50-day average of the total dollar volume (price multiplied by shares) for the 25 largest high-yield ETFs. HYG accounts for roughly two-thirds of this total. In the 50 days ending July 19, $1.56B of high-yield ETFs traded on an average day.
The red line, which shows the ratio of the green line to the blue line, shows the ETF market is currently 20% the size of the underlying cash market.
This is how one-fifth of the high-yield market now trades.
By contrast. the chart below shows the same metric for investment grade. Only 4% of investment grade market trading is driven by ETFs. Other than high yield, this is a large number when compared to other ETF sectors. It shows how dominant high yield is relative to its underlying cash market.
The black market rate of Venezuela’s currency continues to collapse resulting in hyperinflation and a worsening situation in the country. Note that in the last year the black market rate went from 1,010 Bolivars to buy a dollar to 8,481 Bolivars today. A drop of 88%.
At this rate of currency depreciation over the last year, prices in Venezuela would need to rise 833% in the last year to keep pace with inflation. This is not happening with wages. But, as the next chart shows, the Venezuelan stock market is keeping pace with this hyperinflation rate (for now). It went up by 970% in the last year (blue) leading to a 27% currency adjusted rate (red now). Venezuela’s stock market has 15 liquid stocks with Mercantil Servicios Financieros, C.A. and Banco Provincial, S.A. account for 85% of their stock market’s capitalization. Mercantil Servicios is a junk rated credit and Banco Provincial is no longer rated.
Merger Arbitrage (Human) vs Algo Hedge Fund Returns: The two charts below show the ends of the spectrum. The first chart shows the “algo and bot” driven hedge funds are doing poorly relative to the S&P 500 (blue). The second chart shows arguably a human-based activity, merger arbitrage. Of the more than 30 categories HFR tracks, this is the best performing category over the last three years, beating the global bond market (orange) and the MSCI world index (light green), but lagging the S&P 500 (blue).
Apple, Disney and Berkshire Hathaway are regarded as three most highly thought of stocks to hold for the long-term. The charts below show a ratio of the stock price to the S&P 500 on a total return basis. All three have peaked years ago against the S&P 500 and collectively have been in-line to under-performing the S&P 500 for many years. Is this yet another reason to give up on stock picking and buy a passive index fund?
Heavy Long Positioning In EM Currencies Finally Losing Ground To Developed Currencies?
China Increased Its US Treasury Holdings To $1.09 trillion in March.
A look at S&P 500 Fundamentals.
Selling volatility through leveraged ETFs has fallen out of favor this month. The past 20 days have seen $218 million flow out of short volatility ETFs and $241 million flow into leveraged long volatility ETFs.
The short volatility trade has performed well even as ETF flows turned against the short volatility trade. Leveraged short volatility ETFs are +33% since mid-April. Leveraged long volatility ETFs are -22% over that same period.
Long And Short Crude ETF Assets And Flows.
Long Energy ETF flows continue to increase …
… As cumulative flows in long crude oil ETFs have dipped since February 2016.
A Look at Credit Spreads.
Gas Prices Remain Stable.
Interest Rates: In past weeks we looked at the long and short ends of the yield curve. This week we highlight Moody’s Aaa yields since 1913. Also of note on these charts are the recessions shown in gray.