Key Points

Taking a longer-term view of the copper/gold ratio shows us that the real breakout has not happened yet, but there are big implications if it does. The risk-on/off picture remains mixed this week with a leaning toward risk-on. The growth to value shift remains the most likely scenario in the near-term. Small caps are at an inflection point relative to large caps.

Chart in Focus

The Copper/Gold Ratio: Zooming Out on this Key Relationship

The ratio of copper to gold has made a strong move to the upside that has coincided with a rise in treasury yields and outperformance on the cyclical parts of the equity market. This 20-year weekly chart shows us where this move higher stands within the bigger picture.

The ratio is approaching resistance that dates to 2014, while the 14-week RSI is overbought. A break above this level would send a powerful signal that investor expectations are for the global economy to continue to improve. Should that play out, the doors would be open for secular trend of outperformance by those cyclical areas of the market. This would include Value over Growth at a higher level.

Key Themes and Relationships 

This week, we update our view on the key relationships that we track across the market to get a sense of investor’s willingness to take on risk. We also highlight the trends playing out in major factors such as Growth, Value, Large Cap, and Small Cap.

High Beta vs Low Volatility 

The ratio of S&P 500 High Beta to S&P 500 Low Volatility continues to consolidate but has regained the rising 50-day moving average, while remaining well above the rising 200-day moving average. The 14-day RSI is moving higher after holding the lower bound of what marks a bullish regime.

Odds favor this being consolidation within the context of a larger trend which will ultimately resolve to the upside.

Consumer Discretionary vs Consumer Staples (Equal Weight) 

The ratio of Consumer Discretionary stocks to Consumer Staples stocks traded to a new high this week after holding support at the rising 50-day moving average. Stronger support is at the breakout level from the 2018 highs. For now, the 200-day moving average is well below and not a factor. Momentum could be stronger, as we note the 14-day RSI did not confirm the price high that was reached this week. At the moment, this is something to “watch” as divergences must be confirmed by price. 

*We use the equal weight indexes to account for AMZN’s large weight in the Discretionary sector.

Credit Spreads

The BoA Merrill Lynch US High Yield CCC or Below Option-Adjusted Spread looks at the performance of U.S. dollar denominated below investment grade rated corporate debt compared to a spot Treasury curve.

The spread continues to test support at the 2014 and 2018 lows. As this test plays out, we note that the 10-year yield (middle) panel is testing resistance and has been unable to breakthrough. For the past 10-years there has mostly been an inverse correlation between credit spreads and the 10-year treasury yield.

Zooming in on the most recent data shows a very small uptick in spreads as the 10-year yield has faded from resistance, but nothing that gives pause currently.

We are closely watching these support and resistance levels. If they are defended, it could point to a shift in investor willingness to take on risk.

The themes below can show us where investors are allocating capital within the equity market.

Growth vs Value

The relationship between Growth and Value remains at an inflection point. The ratio is stuck at price-based resistance between the falling 50-day moving average and the flat 200-day moving average. Momentum, based on the 14-day RSI, remains in a bearish regime.

At best this trend can be called neutral, however, the scales are still tipped in the favor of Value over Growth in the near-term.

Small vs Large

The S&P 600 Small Cap Index relative to the S&P 500 is also at an inflection point as it continues to test the support level that we have been highlighting. The ratio is below the 50-day moving average which is shifting from rising to flat. The rising 200-day moving average is the next level of support should near-term weakness persist. The RSI of the ratio may be in the process of shifting to a bearish regime, but it is too soon to tell.  


The copper/gold ratio is arguably one of the most important relationships to watch in the market right now. Breaking above resistance would set the stage for Value to continue to lead Growth in what would likely be considered a secular shift of trend.
Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.