All posts by Luke Palmer

Renewable Froth: Memories of the Dot-com Boom

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Party like it’s 1999…

“There’s nothing in this world, which will so violently distort a man’s judgment more than the sight of his neighbor getting rich,”

JP Morgan, After the Panic of 1907

Peak Price to Sales Ratio

Tech in 2000

CSCO Cisco: 31x
QCOM Qualcomm: 29x
MSFT Microsoft: 25x
INTC Intel: 14x

Renewables in 2020

PLUG Plug Power: 52x
NIO Nio Inc: 30x
ENPH Enphase Energy: 29x
TSLA Tesla: 19x

Renewable froth, memories of the dot-com boom.

Price to Sales in Growth Equities

Not only are renewables trading at sky-high valuations, but price to sales ratios in growth stocks as a whole are now above their 2000 peak.

Renewables Quarterly RSIs (Relative Strength Index)

ENPH: 96.8
DQ: 89.8
SEDG: 89.5
PLUG: 88.6

Tech Quarterly RSI 2000 Peak

CSCO: 98.5
QCOM: 97.8
TXN: 92.8
INTC: 92.3

ENPH Enphase Energy

The solar panel manufacturer, Enphase Energy, has a quarterly RSI (Relative Strength Index, momentum indicator) of 96.8, one of the highest readings we could find today. Historically when a quarterly candle is this far above its upper bollinger band (purple) it is hard for a stock to maintain its strength, however, with a quarterly RSI of nearly 97 it’s even more challenging. We see meaningful downside in Q1 for this heavily overbought stock.

Renewables Monthly RSIs

PLUG: 95.3
DQ: 92.5
ENPH Enphase Energy: 88.6
SEDG Solar Edge: 87.9

Tech Monthly RSIs 2000 Peak

QCOM: 98.1
TXN: 93.9
CSCO: 93.4
INTC: 82.7

TXN Texas Instruments Monthly RSI Pop in 2000

Overall, the monthly/quarterly RSIs in the renewable energy space look very similar to tech in the dot-com boom…

Lessons From Cisco

Out of dozens of stocks back in 2000, the highest RSI we could find on a quarterly basis was CSCO at 98.5, only slightly higher than ENPH’s current readings of 96.4.

Despite becoming a very successful company over the past twenty years, now employing over 80,000 people, CSCO is still -45% below its 2000 peak!

The important thing to remember is when equities become this overbought on a long-term technical basis, they are pricing-in DECADES of success. Everyone knows renewables are the future of power-generation, that does not mean these valuations are sustainable in the near-term.

PLUG Plug Power Monthly RSI Above 95

There is unsustainable momentum in high-flying renewable names on a monthly and quarterly basis. When considering we are currently running into month-end / quarter-end, this means January will open with new candles very over-stretched on a technical basis. In our view, this speaks to heavy downside risk in Q1 in the renewable space, RSIs above 95 are very very rare.

RSI Divergence

Any trader experienced with technical analysis will tell you RSI works best when there is price and momentum divergence. As a bearish indicator this means RSI is well BELOW its highs while price is HIGHER. Despite RSI at the highs (blow-off tops) in many renewable and technology equities, this bearish divergence is occurring in the most important equity index in the world – the S&P 500.

S&P 500 Quarterly RSI Divergence

Just like the dot-com peak, the quarterly RSI in the Index has been fading lower for a few years (loss of momentum), while the S&P 500’s price has hit new highs, this is MEANINGFUL bearish divergence. In our view, we are close to a long-term top.

Apple Quarterly Bollinger Insanity

While US equity indexes (and even some non-US equity indexes are over-stretched using quarterly bollinger bands, in some single name equities the over-heating is severe. Namely, Apple and some other volatile tech names like AMD were some of the most extreme examples we could find. Importantly, these all speak to meaningful downside in the first quarter of 2021, especially if we rally into year-end.

Nasdaq Quarterly Bollinger Bands

On a quarterly bollinger band chart, this quarter’s candle is meaningfully extended over the upper bollinger band across US indexes, especially the Nasdaq. Historically, it is hard for equities to maintain their technical strength above this upper band. The nasdaq currently sits 11% above the upper bollinger band, this is the largest spread since the dot-com peak.

TAN Solar ETF Spread Above the 200 DMA
The TAN Solar ETF is now 102% above the 200 day moving average, the largest spread in the ETF’s history. 

The argument in 2019: Big tech is not a 1999 bubble because of underlying profits. Now, we have a whole host of tech, renewable, and EV plays with no profits and a colossal newly minted valuation up-take since October 1st.

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Don’t make it a long dance with the Devil

Warning: Do NOT hold the TQQQ Nasdaq ETF for the Long-Term

Let us be clear, we are discussing the largest casino on the planet earth right now. The 3x Levered, ProShares UltraPro QQQ should come with a surgeon general’s public warning. All one has to do is look at the average trading volume – nearly $5.5B a day for this ETF. It makes the Wynn casino empire’s annual revenues of $6.6B look like child’s play.

We are talking about a borderline scam here? It’s a mathematical fact that this beast is NOT long for this world. Sustainability is the question. It’s a high stakes game of musical chairs, DON’T get caught holding the bag.

TQQQ Total Assets

The TQQQ ETF has lost nearly -35% since the Nasdaq’s September 2nd perch, yet the fund’s total assets have only decreased -16.1% in the same period. This difference is because the TQQQ has seen net-inflows throughout the month of September, the idiots have been buying the dips on this slot-machine with BOTH hands.

TQQQ: “ProShares UltraPro QQQ is an exchange-traded fund incorporated in the USA. The Fund seeks investment results which correspond to three times (300%) the daily performance of the NASDAQ-100 Index.

The popular TQQQ ETF is commonly referred to as a 3x levered version of the Nasdaq. Let’s see how this has played out in action…

Returns: QQQ Nasdaq ETF vs. TQQQ UltraPro 3x Nasdaq ETF

% Return Today (9/24)

QQQ: +0.5%
TQQQ: +1.5%

Makes sense…

% Return Past Month

QQQ: -6.4%
TQQQ: -20.5%

Little more than 3x, but close enough…

% Return Since 2010

QQQ: +520.7%
TQQQ: +6,931.6%

Wait… what?

% Return Since the February 2020 Top

QQQ: +11.3%
TQQQ: -5.1%

Wait… what???

“The scary part of TQQQ is a 10-year chart gives off the impression that a long-term investment is safe.”

What’s Going on?

We must think about the math. If an investment starts at $100 and loses -5%, you are at $95. To get back to $100, you need appreciation of +5.26%. However, if that investment is 3x leveraged, you lose -15%, and instead are at $85. To get back to $100 in this scenario, you now need appreciation of +17.6%. Notice that the 17.6% needed is greater than 5.26% x 3.  

Now, let’s take is up a notch…

Scenario A: Stock XYZ is a non-leveraged stock that falls -33%. The stock needs a +49.25% appreciation to get back to even. $100 would have gone to $67 and a after a +49.25% rally, $67 becomes $100 again.

Scenario A (but 3x leveraged): Stock 3XYZ is a 3x levered version of the same stock. When stock XYZ falls -33%, stock 3XYZ falls -99%. This stock needs +9900% appreciation to get back to even! $100 would have gone to $1 and after a +147.75% (3 x  49.25%) rally, $1 becomes just $2.47!

The Nasdaq 100 Index has NOT seen a -33% drawdown since TQQQ was created in 2010. Once it does, TQQQ’s prior high is likely to NEVER be reached again.”

DANGER: TQQQ UltraPro Nasdaq ETF

ANY financial product that is levered 3x is NOT meant to be held for the long-term. The 10,693% rally in the 3x levered TQQQ Nasdaq ETF from 2010 to the recent peak may NEVER be replicated. The largest drawdown the TQQQ 3x Nasdaq ETF has EVER suffered was -73% from February to March 2020. Although, the -73% TQQQ drawdown was painful, a recovery to new highs was attainable. However, if the Nasdaq had fallen just a few more percentage points and the TQQQ drawdown went past -90%, a recovery back to the highs would have been nearly impossible. The Nasdaq 100 Index has NOT seen a -33% drawdown since TQQQ was created in 2010. Once it does, TQQQ’s prior high is likely to NEVER be reached again.

Long-term Safety Façade  

TQQQ looks great on a 10-year chart, but there is no such thing as a free-lunch in finance. TQQQ’s +6,410.9% outperformance over the Nasdaq 100 since the ETF’s inception in 2010 will not be repeated for a very long time, if ever. This was only possible because since the TQQQ ETF was created, the Nasdaq has not seen over a -33% drawdown… yet.

Keep in mind, the Nasdaq fell -76% from the Dot-Com bubble’s peak to trough. If this were to happen today, the TQQQ would be a penny stock and the 8 billion dollars invested in the fund would be looking around, scratching its head, wondering what just happened.

Unfortunately, the probability is high that inexperienced retail investors lose over -90% of their investment in TQQQ and do not realize they may never get back to an even P/L, regardless of what the Nasdaq 100 Index itself does.

Bottom line: PLEASE do NOT hold the TQQQ for the long-term. If we see anything near -35% drawdown in the Nasdaq, new highs in TQQQ are nearly impossible, the math proves all 3x leveraged ETFs must be traded NOT owned. The scary part of TQQQ is a 10-year chart gives off the impression that a long-term investment is safe…



The IPO Restricted-Share Unlock Schedule

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This morning WeWork junk bonds touched a 13% yield, earlier this year the brain trusts on Wall St. talked up a possible $60B valuation. Then, SoftBank purchased private shares, completed in connection with a $5B primary investment into WeWork that valued the company at $47B, more than double its previous valuation, according to Pitchbook. Today, the equity is near worthless, oh how quickly sentiment can change.  That’s the problem with leverage – when equity stands behind a colossal pile of debt, it can evaporate far faster than most realize. SoftBank better pull-out the checkbook, $10B of fresh cash is needed. In our view, WeWork has the capacity to issue a little more than $1B in secured debt and $2.56B of unsecured debt. This is substantially less than some of the estimates floating out there regarding potential loan commitments., working with Xtract Research on the numbers. Above all, we must think about the follow-on side effects in today’s equity market. These events are harbingers of things to come in our view. A meaningful re-pricing is in the works.

“If the company is unable to raise new financing before the end of November, the people said it could face something that executives within WeWork never thought was an option just weeks ago: bankruptcy.” – FT

Central Banks Funding Fraud?

We must ask ourselves. After wide-open capital markets, an endless gravy train of nearly free cash, are the side effects in venture capital playing out? How can WeWork eviscerate $50B of equity value in less than six months? What are the follow-on implications? Postmates, Lyft, DoorDash, WeWork, Peloton, Uber, and Casper will lose nearly $15B this year. A near-endless supply of cash is needed to fund many of these businesses. The financial media’s story of the year is WeWork’s implosion. The larger narrative will be found in SoftBank’s Vision Funds impairment – if the market isn’t there for them, they will have to fill the capital hole.

A Wave of Sellers

The restricted shares from the respective IPOs of Zoom Communications (ZM) and Pinterest (PINS) were ‘unlocked’ on Tuesday. Both stocks are lower despite over a 1% rally in the S&P 500. ZM is down -2.6% while PINS is down -4.4%, both are on-track for their largest volume days in months. In our view, this shows across the IPO space, there is a herd of restricted-shares just waiting to sell. See below for the restricted share expiration schedule…

The IPO Unlock Graph

Out of the $31.2B of restricted IPO shares becoming unlocked from now until the end of the year UBER is 71% of the total. ($22B vs. $31B). However, what is very interesting is the amount unlocking relative to the current float…While most unlock packages are smaller than the current float or near a 1:1 ratio, UBER’s is 4x the size! UBER float is currently 195M shares and worth $7.4B. Meanwhile, 764M shares worth $22.3B of UBER are unlocking on November 6th… That means up to 424% of the current float could be for sale.

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WeWork Contagion and a Lyft Benefit:

Given what just happened to WeWork and the performance of LYFT and UBER IPOs, you have to think a large portion of the $22B unlocking wants out… Meanwhile, some clients are thinking this will be a positive for Lyft, as the company was used as a hedge for restricted shareholders…

UBER Currently has a $49B Valuation

The series G funding round was at a $68B valuation in 2016, (FortRoss Ventures, Saudi Arabia’s Public Investment Fund). In August 2018, Toyota Motor Company came in with a $500M investment at a $76B valuation… Last man on the deal team?

Lyft Restricted-Shares Unlock

Notably, Lyft is down -42% since they announced the early unlocking of their restricted shares. Although the increase in float does not directly influence the valuation, it does bring a herd of likely-sellers.

Since August 15th

LYFT -26%
UBER -5%

*IPO Lock-Up Impact… Bloomberg data


Zero Sum Game
Ridesharing companies LYFT, and UBER don’t have a moat in our view. It’s like “Chinese capitalism” (that funnels lots of profits to consumers, thus poor performance in the company’s stock prices). It’s a subsidy of consumers (Uber riders) at the expense of Uber shareholders and Uber Drivers.

IPOs Shelved

Endeavor Group Holdings

In Limbo

Palantir Technologies

Drawdowns from IPO

Lift -53%
Slack -49%
Smile Direct -43%
Uber -36%
Peloton -18%

*Equity valuation drawdown near 80%.

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Yield Curve Inversion & The 90% Day

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90% Down Days

2011: 33
2010: 20
2009: 17
2012: 8
2013: 7
2014: 5
2015: 7
2016: 4
2018: 7
2019: 3

*over 90% of the NYSE stock trading volume is in Down vs Up stocks.

The Official 90% Day

Over 90% of volume went into Down vs. Up stocks on Wednesday, while the overall advance/decline was down nearly 5:1 with 8 sectors falling more than 2% with energy and financials leading the way lower.

90% volume down-days have occurred 127 times since September 2008. In the following 3 months (60 trading days), the S&P 500’s median return was +5.07%. Meanwhile, in the 95%+ volume down-days (today was 95% exactly) the median return was +7.74% in the following 60 trading days.

“There have been 32, -2.5% down days in the S&P 500 since 2010. Using those 32 past occurrences, the median number of days until ANOTHER -2.5% is only 16 days. 22 out of the 32 (68.8%) came within a month of the previous -2.5% drop.”

Bear Traps Report, August 5th, 2019

*This time only took 9 days

US 2-10 Yield Curve Spread
The 2s 10s US yield curve spread inverted for the first time since mid-2007 on Tuesday. Despite many other areas of the curve having inverted earlier this year (3-month / 10-year for example), the widely followed 2s / 10s curve had the media’s attention throughout the day and helped contribute to the significant equity sell-off. When coupled with slowing global growth and rising geopolitical tensions, markets ran-away in fear, from this classic recession indicator.

US 3-Month / 10 Year Yield Curve
Since the beginning of the month there has been significant flattening across the curve as long-end yields have continued to fall. Notably, the 3-month / 10-year spread has been pushed further into inversion, down to -37bps (the spread first went inverted in late March this year). Although the 2s / 10s curve is more commonly followed among retail investors, the 3-month / 10-year has significant importance of its own. The spread is the sole variable in the calculation of the monthly New York Federal Reserve’s Recession Probability Indicator. Importantly, the last print of the recession-probability was used the morning of the Federal Reserve’s  latest meeting and completely missed all of the flattening and inversion that has occurred in recent weeks!

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NY Fed Probability of Recession in Next 12 Months

The latest recession-probability print showed a decrease from the month prior to 31.48%, driven by the steepening in the 3-month / 10-year yield curve spread throughout July.  However, the NY Fed’s latest recession probability does not include the significant flattening seen in recent weeks. It missed out on the Fed’s recent meeting where markets reacted hawkishly, Trump’s tariff threat for September 1st, the Yuan 7-handle break, and the recent inversion!

The Probability’s Importance:

Many experienced investors would likely say the 2s / 10s yield curve spread falling just 3-5 bps on the day would not have any significant implications for equity markets. However, the S&P 500 closed lower -2.96% on the day. Of course, this was not completely driven by the inversion-scare but it is hard to deny the negative psychological effects.

In our view, when the updated recession probability prints in the first few days of September, it will have a similar psychological impact. Keep in mind, this is coming from the New York Federal Reserve,  a rising probability points directly to more rapid rate-cuts out of the FOMC.

Based on the 3-month / 10-year spread, the New York Fed’s probability is just under 40%, if we see even more steepening look for a probability pushing 50% and a significant market impact in rates, equities, the US Dollar, gold, and eurodollar futures.

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Precious Metals Not Taking a Breather

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Secular Silver Shift
This week, the ratio between the Russell 3000 Index and silver fell below its 200-day moving average, a significant event. In our view, this is a clear sign investors are shifting into asset classes which benefit more substantially from global central bank rate cuts.

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Since the Fed’s Dovish Shift in late May

GDX Gold Miners: +40%
SIL Silver Miners: +33%
EWZ Brazil: +25%
GLD Gold: +14%
SLV Silver: +14%
SPY S&P 500: +8%
EEM Emerging Markets +8%
IWM Russell: +6%

Ever since the Fed caved on rate cuts, precious metals and miners saw parabolic rallies. As the Federal Reserve caved on its hawkish policy path and the US Dollar began to weaken, metals have crushed US equities.

Ugly Budget Coming out of Washington

U.S. budget deficit increased by $140 billion during the first nine months of this budget year to $747.1 billion as government revenues and spending both hit records. The Treasury Department reported Thursday that the deficit for the current fiscal year through June is up 23.1% over the same period a year ago with receipts rising by 2.7% while spending increased 6.6%. The Trump administration is forecasting that the deficit for the full budget year, which ends on Sept. 30, will top $1 trillion, up from a deficit of $779 billion last year.

The Recent Surge

At the beginning of June this year, metals began shooting higher once again. Capital crowded in the US Dollar finally began to leave as the Fed guided towards an end-of-July cut. Similar to the beginning of 2016, gold and silver are not taking a breather, investors have had few chances to add on a ‘pullback’.

SLV Silver TrustSilver is breaking out of an elongated downtrend to the upside. Precious metals remain one of the best risk/reward trades in the near-term, in our view. Similar to the beginning of 2016 when the Fed caved on their hawkish policy path, precious metals are not taking a breather in their rally higher. Regardless of the global growth trend, a weaker dollar is a major tailwind here. iShares Silver Trust SLV, the average daily volume in May was 6.3M shares and nearly 40M shares were traded on Tuesday. That’s some serious FOMO (fear of missing out) capital flow.

In our view, Sometime in the Next Few Years

1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak.

2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly coming due and won’t be able to be funded with assets.

In Ray Dalio’s view, (we agree) the paradigm that we are in will most likely end when;

a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better.

b) simultaneously, the large need for money to fund liabilities will contribute to the “big squeeze.” At that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots. Most likely, during this time, holders of debt will receive very low or negative nominal and real returns in currencies that are weakening, which will de facto be a wealth tax.”

% of Euro Denominated Corporate Bonds Outstanding with Negative Yields

2019: 13%
2018: 1%*
2017: 2%
2016: 5%
2015: $0
2014: $0
2013: $0
2012: $0
2011: $0
2010: $0
2009: $0
2008: $0

BofA data, BBB investment-grade bonds, nearly 3% of junk bonds trade with a negative yield. Central banks are forcing capital into places it just shouldn’t be, moral hazard squared. Over the last 40 yrs, we’ve been lectured on the relationship between gold/silver and inflation, but it’s really about price stability. Markets have been pricing in deflationary risks for much of this year. Central banks lose control of prices = precious metals tailwinds. The explosive growth in negative-yielding corporate bonds points to global deflation risk on the rise, that’s FAR from stable prices, gold and silver are sending an important message. 

*Dec 2018 data

Sovereign Defaults Piling Up last 10 Yrs

Puerto Rico

Mathematically unsustainable promises to voters. Populists on the left want to walk away from colossal debt obligations, on the right they want tax cuts.

Credit, Capitalists, and Socialists

At the same time, Ray Dalio points out there will be greater internal conflicts (mostly between socialists and capitalists) about how to divide the pie and greater external conflicts (mostly between countries about how to divide both the global economic pie and global influence). In such a world, storing one’s money in cash and bonds will no longer be safe.

Global Corporate Bonds at Negative Yields

2019: $623B
2018: $12B*
2017: $90B
2016: $226B
2015: $32B
2014: $0
2013: $0
2012: $0
2011: $0
2010: $0
2009: $0
2008: $0

Bloomberg, DB data
*Q4 December

Central banks are forcing capital into places it just shouldn’t be, moral hazard squared.

As the Fed Softens their Policy Path, HIGH Impact on Emerging Market Financial Conditions
Rate cuts get vaporized in a swift economic downturn. The Fed is saying (this week’s John Williams speech), if they cut now – with force – while the US economy still has momentum, we’ll actually have a chance at creating inflation, and avoid deflation and the negative rate trap in Europe and Japan.  The impact on global financial conditions, relative to Fed policy is on stage here (above). Emerging market local currency debt has caught a meaningful bid.

Investors Beware

“Bonds are a claim on money and governments are likely to continue printing money to pay their debts with devalued money. That’s the easiest and least controversial way to reduce the debt burdens and without raising taxes. My guess is that bonds will provide bad real and nominal returns for those who hold them, but not lead to significant price declines and higher interest rates because I think that it is most likely that central banks will buy more of them to hold interest rates down and keep prices up. In other words, I suspect that the new paradigm will be characterized by large debt monetizations that will be most similar to those that occurred in the 1940s war years. So, the big question worth pondering at this time is which investments will perform well in a reflationary environment? A world with large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts. Most people now believe the best “risky investments” will continue to be equity and equity-like investments, such as leveraged private equity, leveraged real estate, and venture capital, and this is especially true when central banks are reflating. As a result, the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash).  I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better-balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.”

Ray Dalio, July 2019

Gold to Silver

Although gold and silver rally in tandem, silver has historically outperformed when both are spiking (see 2016 results). Meanwhile, the ratio of gold to silver is just off 30 years highs! In our view, there is significant ground for silver to catch up here.

Gold to Silver Ratio Metals continue to be strongly bid as gold and silver miners are rallying again this week despite a stronger US Dollar. Silver also significantly outperformed gold again. We highlighted this in our client chat recap yesterday, capital flows from gold to silver, are picking up steam. As we have stressed to clients throughout the last month, overweight silver here.

Bloomberg Nickel SubindexOne reason why silver has begun to outperform gold so much is that it is following the price of Nickel. Futures in Nickel have broken out to a parabolic-like rally, up almost 20% since late June and up over 30% since December. Although the dovish Fed guidance has been a major contributor to the Nickel rally, the industry has also been supported by supply-side reductions in recent weeks. The earthquake that hit Indonesia, as well as continued production cuts from Brazil’s Vale, have added to the upside price pressure.

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The Herd is Running into Consumer Staples, Value Stocks

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A Structural Shift in Equity Markets

Since the financial crisis a decade ago, S&P 500 growth stocks have massively outperformed S&P value and defensive stocks.  Earlier this month something happened that took investors by surprise.

The outperformance of the SGX (S&P 500 Growth Index) vs. the SVX (S&P 500 Value Index) was right near the highest ratio ever recorded. The last time growth outperformed value to this extent was during the dot-com bubble, almost twenty years ago. Then it happened.

S&P Value vs. S&P Growth RatioBefore stocks began to sell-off last week, the ratio of S&P 500 growth vs. value nearly touched its all-time high set during the dot-com bubble. We are confident this structural market shift will continue and are bullish on the value (defensive stocks, consumer staples) vs. growth rotation.

Defensive Names Laying a Beating on Growth

With a plunge in global equities, this ratio has begun a powerful reversal.  We continue to see repeated signs of value and defensive outperformance, we believe this a structural shift and expect a continuation of capital inflows.

On October 24, the S&P 500 was beaten down -3.03%. Yet the QQQ, which is filled with high growth technology stocks, plummeted significantly further and closed off nearly 5%. Equities across the globe saw investors flee. Where did they go?  Capital had to flow somewhere, today the XLP consumer staples ETF closed higher by 42 basis points and was at one point 1.8% higher during intraday trading.

Consumer Staples Select Sector SPDR XLP  ETF vs. SPY S&P 500 ETFA significant divergence began between the S&P 500 and staple equities this week. Capital has to flow somewhere.

We believe a comeback in defensive stocks is just beginning and this is an area we have been overweight in positioning.

In mid-September our Larry McDonald gave the keynote speech at asset management conference in Toronto, speaking about this dynamic. Make sure to review our Toronto Presentation slides, here.

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