Leaders-Laggards

After a brief pause a few weeks ago, energy stocks look poised to make another run at multi-year highs relative to the S&P 500. While cyclicals as a whole remain a mixed bag, the materials sector continues to steadily outperform on the heels of industrial metal and other input prices. Utilities stocks have outperformed the S&P 500 by 600 basis points over just the past two weeks.

Utilities went parabolic last week relative to the S&P 500, but that continues a short-term pattern of whipsaws back and forth. I’ve been talking about the risk of deflation for a while and I think this could be an early sign that sentiment is shifting in this direction. Tech stocks are trying to make something happen here, but there’s just not a lot of momentum for growth or high beta stocks.

Crude oil and natural gas prices remain very volatile and it seems like anything between $90 and $150 a barrel is in play. The strongest sector at the moment is materials, fueled by rising prices in everything from steel to copper to aluminum. The gentle uptrend in industrials remains intact for now, but this sector is still struggling to generate the momentum of its cyclical counterparts.