Leaders-Laggards

The consumer discretionary sector is a perfect example of how investors have pivoted back to growth sectors over the past few weeks. The long-awaited breakout for tech stocks might finally be happening. Industrials recovered along with the rest of the cyclical space and continues to hold up fairly well despite the setbacks happening in the economy.

Based on high inflation and an aggressive Fed, I think the markets will continue favoring defensive assets. A beat on June retail sales expectations added a bit of a sentiment boost, but there’s little question that the environment is deteriorating. Tech could looking a bit better on a relative basis here. Last week was an encouraging sign if you’re a bond investor.

The utilities sector has suddenly gotten very volatile relative to the broader market. Treasury volatility remains historically high and yields continue to whipsaw on every latest development. The longer-term lumber/gold signal is still risk-off, but the ratio is definitely trending back in the risk-on direction. Growth and tech stocks enjoyed a nice bounce last week, but not enough to indicate a change in trend.