Monitoring investment trends with ETF pairs

Markets are still struggling to gauge a variety of risk factors, including: How long and how far will interest rates rise? When will inflation peak? How will the war in Ukraine evolve? Is a global recession destined, and if so, what will it be? Nobody has a crystal ball and the future is always uncertain, but the behavior of trends in the markets can offer useful perspective, especially when the debates about the future are exceptionally tough.

Let’s start with the question of whether US equities will continue to outperform foreign equities? Yes, or else one can argue based on the collective crowd bias, which is unchanged via the relative performance of different proxy ETF pairs. For example, the ratio of US equities () to global non-US equities () shows no signs of breaking its long-standing uptrend, implying that sentiment continues to point to relative outperformance for US equities.

Risk appetite of US equities versus non-US developed market equities

As for the US Treasuries market, the recent rebound in government bond prices could be a turning point favoring risk after a tough first half of 2022. But skeptics counter that the jury is still out. as the Federal Reserve continues to signal that rate hikes will roll. The rebound in the ratio of medium to short-term Treasuries reflects the latest shift in sentiment towards risk, but it is premature to say that the trend is making a lasting comeback.

US bond market trend

US bond market trend

On a related note, the relative strength of inflation trade has taken a hit lately, but it’s too early to write the obituary. Whether the relative strength of inflation-linked Treasuries () versus nominal Treasuries () can continue to outperform could face a critical test in the coming months.

Inflation/reflation trend in the United States

Inflation/reflation trend in the United States

Meanwhile, the recent rally in value stocks () is facing turbulence against growth stocks ().

US Value Stock Trend

US Value Stock Trend

The headwinds are even stronger for US small cap stocks () compared to the broader equity market ().

U.S. Small Cap Stock Trend

U.S. Small Cap Stock Trend

Meanwhile, a recovery could be brewing for the share of renewables () versus conventional energy ().

Global Renewable Energy Equity Trend

Global Renewable Energy Equity Trend

Tracking the relationship between copper () versus gold () is seen as a market-based proxy for business cycle trends and based on this, the trend is still bearish for the macro outlook.

Copper-Gold Trend

Copper-Gold Trend

Finally, the crowd is moving towards a relatively defensive stance for asset allocation, although there is still room for debate. The relative performance of aggressive versus conservative allocation has faltered of late, but so far the change is modest and so it’s too early to say the crowd has thrown in the towel for favoring risk at the strategic portfolio level.

Global Portfolio Strategy Trend

Global Portfolio Strategy Trend