Growth vs Value: Outperformance in growth names
Updated
I think we are entering a period similar to that of April 2020 to September 2020, and growth names will outperform value stocks dramatically until Q4 2021 or Q1 2022.
The market could be about to top in the very long term after these developments, as we had a massive rally in oil, and a rapid surge in global credit creation since the pandemic lows. Govts and Central Banks have been easing, keeping real interest rates below the natural rate of interest while providing stimulus aiding people until an economic recovery took place.
We are just now slowly going back to normal, but the economic recovery is yet to reach levels adequate for the easing to stop. All the stimulus and credit creation paired with supply chain issues due to lock downs has led to a period of higher inflation expectations, driven mainly by a tremendous rally in commodities, which seems to be over by now. There is an interesting pattern where the global credit impulse chart leads changes in bond yields with a 10 month time lag and/or industrial commodities returns by about 8 months (as noted by Alfonso Peccatiello, author of 'The Macro Compass' substack). The data shows it peaked in Q4 2020, which, forward 8 months, gives us a peak in April-June for commodities and by Q4 2021 for bond yields to move (and likely affect risk assets overall). This possibly will match the time required for data to give the Federal Reserve confidence to taper and accelerate the pace of interest rate hikes, faster than the market potentially expects.
My mentor, timwest had pointed out that big rallies or declines in oil precede bottoms or tops in equities with a 6 month lag, this metric also fits the idea of a top by EOY.
Refer to his publication in related ideas for more info on that pattern, it's extremely interesting, as it gives actionable key levels for long term analysis.
See related ideas for my long term forecast for Nasdaq, which fits this macro framework as well, potentially predicting a long term rally culminating by Q4 2021 or Q1 2022. This same pattern is present in mega cap names like
AAPL and 
AMZN, and visible in 
SPY charts as well.
After the current growth rally, we might get a period where there is a dollar shortage in the Eurodollar market, and everything goes risk off, except for DXY.
We need to be prepared to mitigate its effect or even profit from it, but also don't miss the current huge rally that is starting now.
This will likely happen after real interest rates surpass natural observed interest rates, triggering a broad risk asset selloff and deleveraging.
What has happened historically is that after long term trends end in major stock indices, we enter a period where commodities outperform stocks, this is likely to occur after the initial shock recedes. Might be the time to revisit my long term
XAGUSD idea.
Cheers,
Ivan Labrie.
References:
richmondfed.org/research/national_economy/natural_rate_interest
treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield
themacrocompass.substack.com/
macromarketsdaily.com/p/global-credit-impulse-starting-to
The market could be about to top in the very long term after these developments, as we had a massive rally in oil, and a rapid surge in global credit creation since the pandemic lows. Govts and Central Banks have been easing, keeping real interest rates below the natural rate of interest while providing stimulus aiding people until an economic recovery took place.
We are just now slowly going back to normal, but the economic recovery is yet to reach levels adequate for the easing to stop. All the stimulus and credit creation paired with supply chain issues due to lock downs has led to a period of higher inflation expectations, driven mainly by a tremendous rally in commodities, which seems to be over by now. There is an interesting pattern where the global credit impulse chart leads changes in bond yields with a 10 month time lag and/or industrial commodities returns by about 8 months (as noted by Alfonso Peccatiello, author of 'The Macro Compass' substack). The data shows it peaked in Q4 2020, which, forward 8 months, gives us a peak in April-June for commodities and by Q4 2021 for bond yields to move (and likely affect risk assets overall). This possibly will match the time required for data to give the Federal Reserve confidence to taper and accelerate the pace of interest rate hikes, faster than the market potentially expects.
My mentor, timwest had pointed out that big rallies or declines in oil precede bottoms or tops in equities with a 6 month lag, this metric also fits the idea of a top by EOY.
Refer to his publication in related ideas for more info on that pattern, it's extremely interesting, as it gives actionable key levels for long term analysis.
See related ideas for my long term forecast for Nasdaq, which fits this macro framework as well, potentially predicting a long term rally culminating by Q4 2021 or Q1 2022. This same pattern is present in mega cap names like
AAPL and AMZN, and visible in SPY charts as well.After the current growth rally, we might get a period where there is a dollar shortage in the Eurodollar market, and everything goes risk off, except for DXY.
We need to be prepared to mitigate its effect or even profit from it, but also don't miss the current huge rally that is starting now.
This will likely happen after real interest rates surpass natural observed interest rates, triggering a broad risk asset selloff and deleveraging.
What has happened historically is that after long term trends end in major stock indices, we enter a period where commodities outperform stocks, this is likely to occur after the initial shock recedes. Might be the time to revisit my long term
XAGUSD idea.Cheers,
Ivan Labrie.
References:
richmondfed.org/research/national_economy/natural_rate_interest
treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield
themacrocompass.substack.com/
macromarketsdaily.com/p/global-credit-impulse-starting-to
Trade closed manually
I'm concerned given weakness in multiple names and sectors, that we could get a broad selloff rather than a rally like I describe here. Fixed income probably one of the rather safe things to buy, or USD and puts. I'm in cash now, as I reassess the situation. Macro variables fit either a broad selloff, or a rally in growth vs value and bonds, but given recent remarks by Powell that inflation might be harder to control than they thought, the Federal Reserve could be forced to risk sooner than what the market prices in. If anything, hedging or holding cash is probably wise. Holding bonds probably doable as well, and maybe some defensive names even though I'd rather not hold any longs until things are clear again.Note
I was right about weakness causing a drop here, overall the macro variables justify shorting value, financials, energy, etc., since the reflation trade is over...long fixed income has been working, long tech has gotten destroyed today, but growth did outperform value, relatively. Pure risk off day for the most part, dollar and
VIX rallying, stocks falling, metals falling, bonds rallying, crypto falling...risk off.Trade active
Market bottomed this Monday, didn't update but I am still in growth stock positions: I sold the value names I had before publishing this, and jumped on growth during May already. I rotated some of my positions into other names, but the same macro idea remains valid.
Note
Time for sideways action in 
VUG for weeks on end: Note
The ratio looks to have corrected enough, back to growth outperformance soon.
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