Weekly Risk Signals

There’s a decisive move being made into defensive equities. The leadership in defensive sectors might be what a bear market looks like in this environment. All of the conservative equity options - consumer staples, utilities, healthcare, low volatility, dividend growth - have been leading and that’s a reflection of how market sentiment may be shifting. I think there’s still the potential for a Treasury rally later this year.

The greatest strength is still being displayed by utilities, which has been the one sector that’s consistently been ahead of the recent struggles in stocks. The most watched Treasury yield spread finally inverted last week, which means recession watch is now officially on. I’m skeptical we’ll get the number of rate hikes that the Fed is currently forecasting. I think the markets could still move higher here in the short-term.

I believe that lumber has finally begun its crash as the lumber/gold signal flips to risk-off for the first time since October 2021. This is looking like it could stick for a while too. 30-year mortgage rates have risen by 1.5% this year alone. I wouldn’t be surprised to see a real opportunity in long-term Treasuries if investors start moving back into safe havens.