Weekly Risk Signals

Last week, it was the economic recovery themes - value, small-caps and cyclicals - that outperformed. The defensive leadership that kicked off 2024 seems like a long-forgotten memory at this point, but it seems clear that investors are underestimating the possibility that the Fed won’t be nearly as dovish as they think it will. Despite the improvement for a single week, overall market breadth is still not healthy.

The signals remain mostly in the risk-on direction following a second straight week dominated by strength in large-cap tech stocks. The high level data supports the notion that the economy is still in relatively good shape for now, but some of the underlying fundamentals still urge caution. Market breadth is starting to look like a problem again. The only subsector that hit all-time highs is technology.

Last week’s return to mega-cap growth leadership looked a whole lot like what we saw throughout 2023. Therefore, we shouldn’t dismiss the rally by defensive stocks to start the year as being over yet. there’s no firm longer-term trend in place right now, which makes sense given the volatility we’re seeing in both utilities and Treasuries.