Closing Thoughts for the Week

The markets again took another minor step towards taking some risk off the table, but it was far from unanimous and shows that short-term factors are still clouding the picture. There’s a lot of opportunity now that the “magnificent 7” stocks have lost their shine and it looks like some of that is starting to shift to the defensive side of the market. Every week that goes by where long-term yields remain stuck in a range raises the chances that it only gets unstuck with a violent move.

The VIX may not have spiked this past week, but volatility definitely returned and investors seemed confused about which signals to follow. The “out of growth/tech & into cyclicals” trade extended another week with energy and financials outperforming once again. The big question in my view right now is whether we’re seeing the start of the credit event. The signals still look to be mostly risk-on for now, but this looks like conditions could change very quickly.

The Fed and the ECB did what was expected this past week, but the Bank of Japan made perhaps the biggest policy adjustment and one that caught the markets a bit off-guard. The market reaction wasn’t quite what I expected. I really thought the volatility spike would scare the bulls off when one of the last central bank holdouts finally started capitulating. That doesn’t change longer-term conditions though.