This column assumes that ETFs are the primary investment tool for the reader.

Please see my weekly market summation for a review of the macro-economic environment and general macro-level market trends.

Investment thesis: the macro-averages are now in a bullish posture; it’s a good time to take a new position. But be careful; defensive sectors are starting to rise, indicating traders are a bit more cautious.

Let’s start by looking at last week’s market activity, beginning with the treasury market:

TLT 5-day

The treasury market moved lower on Monday and then traded sideways for the rest of the week. Volatility was higher on late Tuesday and Wednesday as the market digested the whipsaw activity regarding additional fiscal measures. Also note the sharp sell-off and subsequent rally on Friday, likely due to additional fiscal talk.

SPY 5-day

SPY trended higher for the entire week as shown by the central tendency line in blue. t took the index an entire day to recover from Tuesday’s sell-off, but it did recover.

IWM 5-minute

I noted in my weekly round-up that smaller-caps led the market higher this week. Notice that IWM had a very strong move higher earlier in the week. This explains why small caps did so well last week.

Let’s pull the lens back to the 2-week time frame:

IEF 2-week

During the last two weeks, the treasury market has clearly trended lower, as shown by the 200-minute EMA (in magenta). The ETF has gapped lower twice and then consolidated sideways.

QQQ 2-week

While larger caps are higher, their respective charts are messier. QQQ – which has led the markets higher for most of the post-lockdown rally – is struggling. It’s also been prone to sharper, higher-volume sell-offs.

IJH 2-week

In contrast, smaller caps have stronger charts. Mid-caps have a solid uptrend

Admittedly, there were plenty of pros from Credicorp’s (NYSE:BAP) investor day event. Management’s strategic consistency is commendable, and so is its efforts in driving digital transformation across the organization. Concerns around the evolution of payment behavior of clients and the cost of risk were also addressed.

Nonetheless, I think management has baked in too much optimism into the strategy, which does leave room for a downside surprise. Considering the multitude of risks on the horizon (both economic and political), fiscal 2021 is still likely to be a transition year, and I think it would have been more prudent to assume a more gradual normalization to pre-COVID-19 levels. Valuations have admittedly corrected below historical levels, but shares still trade above better-capitalized LatAm peers (Santander (NYSE:SAN), Itausa (OTC:IVISF), Bradesco (NYSE:BBD)) at c. 1.5x P/B.

Broadly Unchanged Strategic Direction

Somewhat surprisingly, Credicorp’s strategy remained mostly unchanged compared to 2018, when management last discussed its medium-term targets. But considering the lower-growth environment we find ourselves in, this likely reflects some optimism on the part of management. For instance, loans are still expected to grow 7-8% from 2022 onwards (only slightly below the 9-10% growth range outlined before). Credicorp is also expecting a swift rebound in Peru’s GDP following a 12% decline in 2020, with an 8-10% growth outcome projected for 2021.

Digital Initiatives Lead the Long-Term Charge

Digital transformation remains at the forefront of the strategy. While the digital shift helps to improve customer experience, I think the key is that it helps the company capture incremental cost efficiencies. At the forefront of the company’s digital innovation push are Yape (over 4 million users for payments) and Cocos y Lucas (FX operations), which will facilitate the target for 70% of all transactions to go digital in three years.

Source: Credicorp 25