Weekly Risk Signals

The sharp move higher in defensive assets and themes during the 2nd half of last week may be putting the markets on notice. This is the first time in 2023 where virtually every risk-off asset class - utilities, staples, low volatility, value and Treasuries - all participated in a major way at the same time. It’s not impossible that bulls aren’t ready to give in just yet, but conditions have shifted in a way that they haven’t for several months.

The disinflationary trend was confirmed last week, but it’s also started pushing 2023’s biggest sector and index leaders into overbought territory. There is a modest broadening of this rally taking place, which has given some additional lift to small-caps, industrials, materials and even real estate. The decline in the dollar could ultimately become a game changer for the markets and could ignite a broader rotation into international stocks and cyclicals.

The developing uptrend we were seeing in long-term Treasuries over the past several weeks got quickly and decisively turned back. Lumber is still looking relatively strong here and has confirmed the stealth rally we’re seeing in both industrial and materials stocks in recent weeks. Utilities are trying to develop a little momentum here, but nothing that would suggest a major sentiment shift just yet.