Counter-Cyclical Underperformance is Overdone Says Copper, CNY and Rates

Counter-cyclical stocks have underperformed cyclical stocks by about 9% since Brexit lows. That recent bout of underperformance has been enough to spur many to proclaim that the world is on the cusp of faster growth and the reach for yield play has seen its end. A review of our charts, however, suggests this period of counter-cyclical underperformance/cyclical outperformance may have gotten ahead of itself. In the below charts we overlay the relative performance of counter-cyclical stocks against cyclical stocks (the blue line, left axis) and then overlay the price of copper (chart 1), the level of the Chinese yuan (chart 2) and the US 10Y treasury rate (chart 3). In each instance we observe the macro variable failing to confirm the underperformance of counter-cyclicals, and the divergence is substantial. This has us not fully embracing the higher growth, cyclical outperformance meme.