Leaders-Laggards

The Treasury rally has taken a bit of a breather, but this week will clearly be a big one for it. Energy stock prices are finally starting to catch up to the decline in oil prices and I suspect there’s more room to go. The outlook for tech still doesn’t look good and may not for another few months. We may be nearing an important inflection point for small-caps right now.

The overall trend here is still towards utilities outperformance, but its behavior has been admittedly pretty choppy. If the November inflation number falls again next week, it could ignite worries that the Fed will overshoot, further strengthening the case for Treasuries. Why are TIPS outperforming even red-hot Treasuries?

Non-energy cyclicals are still holding up well here even though risk-off behavior continues to emerge. The latest PMI report scheduled to hit this week is likely to tell us that the manufacturing sector is officially contracting after slowing for the past year. Falling interest rates have taken some of the bite out of bank stocks lately, but that doesn’t take away from the fact that conditions have definitely improved.