Key Points

Subtle shifts are beginning to emerge that could point to investors becoming slightly more cautious: Real Estate is breaking out and possibly changing its relative trend while High Beta is weakening vs Low Volatility. From a leadership perspective, Value appears to have more room to lead Growth while the Small Cap/Large Cap relationship is at an inflection point.

Chart in Focus

The S&P 500 Real Estate Index has broken to a new high, surpassing the levels that were reached prior to the pandemic. Price is above the rising 50-day moving average. On a relative basis, Real Estate is making a turn higher in the near-term and is above the 50-day moving average which has started to move higher as well.

While early, this could be an indication that investors are becoming slightly more cautious in the near-term, as Real Estate is traditionally a defensive sector of the market.

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 remains in the consolidation that was highlighted last week. While the longer-term trend is intact, the trend in the near-term has turned lower as the ratio has moved below the 50-day moving average (red). The rising 200-day moving average is in the range of key support at the 2018 and 2020 highs. Thus far, the RSI has not become oversold and is fighting to maintain a position in the bullish regime (above 40).

Consumer Discretionary vs Consumer Staples

The ratio of Consumer Discretionary stocks to Consumer Staples stocks is consolidating above the breakout level. The rising 50-day moving average is acting as support to the price trend and the ratio is above the rising 200-day moving average. This dynamic keeps the structure of the uptrend in place, but a break of support would point to a more risk-off stance on the part of investors. The RSI has marked a series of lower highs but remains above the 40 level. These lower highs are a divergence with price that would be confirmed with a break of support.

*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.

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 top-of-mind for many investors and evidence points to the odds favoring the shift to Value continuing to play out. After holding support, the ratio has not been able to break above resistance on the subsequent rally. At the same time, the 50-day moving average is declining and is below the, now flat, 200-day moving average. Finally, there is a momentum shift underway as the RSI has moved from a bullish regime during Growth’s outperformance to a bearish regime as Value has been leading.

Small vs Large

The S&P 600 Small Cap Index relative to the S&P 500 remains under pressure, testing the support level that we have been highlighting and 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 weakness persist. The RSI of the ratio has broken below the lower bound of a bullish regime, signaling a possible shift in momentum.


From a risk-on/risk-off perspective the trends are showing signs of a subtle shift toward risk-off taking place. We note that the Real Estate Sector has broken to new highs.  As far as leadership is concerned, the trend of favoring Value over Growth appears to be strengthening. At the same time, Small Caps are wavering relative to Large Caps as that ratio trades at an inflection point.
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.