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The two deltas that looked like a turn — November 2021

Episode

The extreme

Two moves seemed to announce that the worst had passed. The cyclicals, which October had thrown to almost three deviations below the defensives, stopped falling and recovered more than one standard deviation. Financials, lukewarm until then, jumped and crossed into positive ground. Read on their own, they were two gestures of someone betting on the domestic cycle again. But the regime gauges told another story — and theirs was the one that counted. In numbers: Cyclical/Non-Cyclical recovered +1.15 and closed at −1.55; Financials/IBOV went from −0.37 to 0.76; the Perene Risk Index rose from its absolute floor of 0.0 to just 9.2, still in risk-off; the intermarket grid advanced from 36.67 to 43.06, still defensive. Selic at 7.75%, the dollar at R$5.56, debt at 78.22% of GDP.

What happened next

The capital changed seats, but did not leave the defensive room — and it kept changing seats for a full year. In February 2022, the intermarket grid shot up to 72.48, strong risk-on, but because Brazil became the island taking in the flow the world was shunning, with global risk still at 41.2. In May, the cyclicals returned to the top (from −0.37 to 1.01) and the defensives gave back the ground they had won — "changing hands almost every month," as the reading recorded. In November 2022, the wheel turned again: commodities rehabilitated from −1.44 to +1.00, cyclicals plunging from 1.71 to −0.73, Ânima collapsing from 75.0 to 45.9.

What did not happen

November's recomposition was not the regime turn the two deltas suggested. The Perene Risk Index that left zero did not string together a climb toward appetite — it pulled back, rose again, pulled back once more. Domestic mood, stuck at 39.0 in neutral, did not cross into confidence that month nor find its footing in the ones that followed. Anyone who read the cyclicals' recovery as the bottom of the cycle mistook rearranging the furniture for moving house.

The honest verdict

The month's reading got it right by calling the move a recomposition of weights, not a change of regime — and that honesty held up across the year. What it had no way of knowing is that the back-and-forth would last twelve months: defense and appetite would swap seats without either one settling in. A strong delta in a sector ratio describes where the money went; it rarely proves that the regime has turned.

Continue reading: Ânima vs. Perene Risk — mood against appetite · Cyclicals vs. defensives — who leads each regime · The money that fled inward →

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Characters: Cyclicals × defensives