Leaders-Laggards

Oil prices are well off of their highs and it’s easy to think that a downturn was long overdue. REITs are often considered a bad investment in rising rate environments, but we haven’t seen any evidence of underperformance lately. Higher interest rates helped fuel a good week for the banks, but the outlook appears to be questionable.

The level of outperformance for Financials relative to the broader market has been steep and sustained for nearly three months with little interruption. Materials stocks have been steadily outperforming throughout the past couple of months, feeding off of both the rally in commodities as well as precious metals miners. With China locking down again due to COVID, supply chains become a concern once more, but that would appear to be more of a potential longer-term issue to deal with.

The story here is pretty obvious. Even with the breakout in the commodities space, there’s a bit of a failure for the materials sector to break out with it. The industrial sector is participating in the non-financial cyclical rally, pushing this ratio to its highest level since August of last year.