Trend Reversals, Small Caps Come Under Pressure, and is the Commodity Rally Losing Steam?

Soaring home sales and plummeting air travel were two of the strongest trends to emerge during the pandemic era, but could both soon witness a reversal? And as demand for high dividend climbs and small caps come under a bit of pressure, we’re wondering if the recent sell-off is just a product of standard year-two bull market jitters. Given last year’s massive gains though, is a pullback likely to be proportional? Bearish sentiment on Treasuries meanwhile has hit extremes as the 10-year UST yield hits its highest point in over half a decade and inflation expectations continue grinding higher. Commodities also appear to be taking a breather after a furious rally in 2020 and the Bloomberg Commodity Index has ticked down from its February peak. As Covid cases resume their upward trajectory—particularly in Europe—is the rally truly losing steam or is there still room to run?

1. Low mortgage rates and Covid-induced flight from city living have produced a surge in existing home sales. However, will rising interest rates, rising home prices, and the lack of housing supply end the surge?

Source: The Daily Shot, from 3/23/21

2. While still far below pre-pandemic levels, airline traffic is picking up steam as more Americans get vaccinated and satiate their need to see family and friends…

Source: The Daily Shot, from 3/24/21

3. In the factor world, high dividends are back in demand as rising rates dampen bond returns, yet investors still need portfolio income to live off of…

Source: The Daily Shot, from 3/24/21

4. The white-hot small caps are cooling a bit:

Source: Google Finance, as of 3/24/21

5. If we are in a new bull market, then historically year two ends well, but there is a nice correction in between. Note the larger the surge, the larger the correction:

Source: LPL Research, as of 3/19/21

6. Have bond yields risen too far, too fast?

Source: The Daily Shot, from 3/24/21

7. After a yearlong surge and a breakout of their long-term downtrend, commodities are taking a break:

Source: Bloomberg, from 3/24/21

8. Brexit and the pandemic have combined to give the U.K. its worst GDP performance in 300 years…

Source: The Daily Shot, from 3/24/21

9. I know everyone is sick of it (pun intended) but Europe is getting hammered again by Covid. They either are in or will soon be in a complete lockdown (latest surge is at or over past surges). Some tough sledding for Euro positions?

Source: The Daily Shot, from 3/23/21