trades& tactics
market in different ways. Higher interest rates tend to discourage consumers from buying real estate, but they help banks prosper. For lower interest rates, the converse is true. Generally, interest rates peaked in the early 1980s and steadily fell for decades after that. In 1981, no one would have believed that the 30-year mortgage rate would be 2.5% in 2020. The next chart, “Interest rates,” right, illustrates the value of the S&P 500 divided by the 10-year interest rate and shows the relationship between those two components. It yields a fascinating chart. For a full half-century, the ratio chart was steadfastly bound by a price channel. That’s interesting with not just the defining trend lines but with the midline as well. The one exception to that “bounding” of the data took place during the pandemic, when interest rates were battered so long and stocks went so high that the ratio actually escaped the ancient boundaries of that channel. It has since re-entered its familiar path, yet is still in the upper half of the channel pattern, indicating the risk of lower stock prices ahead. Overvalued technology Of all the sectors that have increased in value since the pandemic stimulus began, none has benefited as much as technology. Semiconductors, electric vehicles, personal electronics manufacturers and internet sites have seen their stocks appreciate by hundreds or even thousands of percentage points in a matter of months. An objective way to view this sector, which is historically overvalued, is by way of the RYT/IEF chart in “Tech stocks,” right. The RYT is an ETF dedicated to the technology sector, and the IEF is an instrument that represents yield. In a way, this is similar to the previous chart, except it focuses specifically on technology stocks. There is a channel in this instance as well, although it extends back to
52
Interest rates For a full half-century, a price channel has bound the ratio chart of the S&P and interest rates. 5500 4500 3500 2500 1500
500
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
slopecharts.com
Tech stocks Stocks in semiconductors, electric vehicles, personal electronics manufacturers and internet sites have appreciated by hundreds or even thousands of percentage points.
Pullquote ipsunt remque de volore, poccaborecero magnis nulloribus, nosaepe ditatibus as sitatas
2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6
0.4
2006
2008
2010
2012
2014
2016
2018
2020
slopecharts.com
2008 (as opposed to 1973). Nonetheless, the channel is well-defined and provides an excellent “quick take” as to the relative value of this sector over the long haul. It illustrates how in 2012, 2015 and early 2019, tech stocks were relatively cheap, whereas the data in late 2021 shows this
The descent of stock prices in 2022 could aggravate an already acrimonious political landscape for the midterm elections.
Luckbox | January / February 2022
2201_TACTICS&TRADES_technitian.indd 52
12/17/21 9:18 AM
