Week In Review: Sector Performance, Risk-Taking, FinTech, Volatility, & Surprising Economics

Today’s Week in Review is a little shorter than normal as I was extremely busy this weekend. However, below are still some of the top charts I collected over the last week or so.

Sector Performance
Over the last month (20 trading days) the best performing sectors have been Financials Industrials, and Consumer Discretionary. Health Care, Energy, Tech, Materials, and Utilities have under-performed the S&P 500 with Utilities being the only sector in the red. 

Another Sign of Risk Taking in the Financial Markets
Not that this means there’s excessive risk built into the market, but here’s another sign of positive risk-taking from the WSJ, as investors continue to seek out opportunities to generate income and alpha, “Would you invest in a company that couldn’t tell you what its business was going to be?Some would, in fact they are doing so in record amounts. Blank-check companies, otherwise known as special purpose acquisition companies, or SPACs, are listed companies that raise money from investors to go and buy a company as yet unidentified.”

FinTech Growth Strengthens Internationally
Howard Lindzon has been pounding the table about FinTech and the ripe opportunity for the financial industry to be disrupted. While many new companies have come to market with their tech offerings in finance, the trend is even stronger in int’l markets. From Bloomberg, “For now there’s one big thing keeping the tech predators at bay: Getting into finance would pull Amazon and its ilk into closely regulated businesses in the U.S. But Fidelity and others see no guarantees this will deter tech companies forever. And beyond U.S. borders, where many financial companies look for growth, tech is already breaking through.”

The Most Valuable Company of All-Time
I found this extremely interesting, while the topic of what company will be the first trillion-dollar market cap, many point to Apple or Amazon, the first may have been the Dutch East India Company. Adjusted for inflation it was worth nearly $8 trillion. From the Visual Capitalist,  “Companies like the Dutch East India Company (known in Dutch as the VOC, or Verenigde Oost-Indische Compagnie) were granted monopolies on trade, and they engaged in daring voyages to mysterious and foreign places. They could acquire exotic goods, establish colonies, create military forces, and even initiate wars or conflicts around the world. The Dutch East India Company was established as a charter company in 1602, when it was granted a 21-year monopoly by the Dutch government for the spice trade in Asia. The company would eventually send over one million voyagers to Asia, which is more than the rest of Europe combined. During this frothy time, the Dutch East India Company was worth 78 million Dutch guilders, which translates to a whopping $7.9 trillion in modern dollars. In fact, at its height, the Dutch East India Company was worth roughly the same amount as the GDPs of modern-day Japan ($4.8T) and Germany ($3.4T) added together.”

Strength During Tightening Campaigns
The Federal Reserve just raised interest rates by another quarter point. The current S&P 500 trend has been the strongest of the last five Fed tightening campaigns. According to Bianco Research, “The chart below shows total returns for the S&P 500 during each tightening campaign since 1983. The S&P 500 is now +29% on a total return basis since December 2015. Though equities have tended to rally as the Fed tightens, the current performance far outpaces all prior tightening cycles.”

Best Sectors Based on the Surprise Index
The Citi Economic Surprise Index is at the high-end of its range, and as the chart below shows, is well above its 75th percentile.

Liz Ann Sanders shared these charts, which provide insight into what equity sectors have historically been strongest when the Surprise Index is this high. The best sectors over the next month after has historically been technology, consumer discretionary and real estate.

Volatility Last Week
Spot Vix closed down near a new low last week. Based on this table shared by the CBOE,  just three of the Volatility indices saw an increase, the VIX for Goldman Sachs, IBM and interestingly – the VIX itself via VVIX. It’s interesting to see the VVIX 15 points above its low, implying theirs a greater expectation for movement in the VIX than in the S&P itself.
Strong Performance of Short-term Volatility Short vs. Mid-Term
The performance of the XIV, the short-term inverse volatility ETN, has been very strong compared to the longer-dated inverse volatility ETN, ZIV. XIV holds short positions currently in the Dec. ’17 and Jan. ’18 volatility futures market while ZIV owns a mix of the April ’18, May ’18, and June ’18 futures contracts. With the lack of volatility and the steepness of the yield curve staying so consistent, XIV is seeing its best 30-day relative performance relative to ZIV. As you can see on the chart, when the 30-day relative performance favors the short-term ETN it’s often been followed by a period of weakness (although the moves have been quite varied in their degree) – which is associated with a rise in market volatility (VIX).

 

Off-Topic

Here are some great pictures of newspaper clippings from the early 1900s of letters kids wrote to Santa. (Mental Floss)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.