Leaders-Laggards

It looks like we might finally be seeing the end of the junk bond rally. A hawkish Fed was bad for the risk asset markets, but it was good for the dollar. No longer is this being viewed as the start of a new expansion cycle, but one that might need to hang on if inflation is re-emerging. With utilities, this could very well be a case of the future looking better than the past.

Even though the growth-over-value trade is starting to pick up, the tech sector as a whole hasn’t really participated. If the BoJ decides to pull the trigger on a rate hike this week, the greenback could be heading sharply lower as it did back in August. The continued rally in gold tells me that we could see utilities make a comeback.

Small-caps continue trading on their value characteristics, not their growth ones. Treasuries are rallying here to the point where it can’t just be considered a quick pop. As mentioned many times in this space, the key here is the yen. If the BoJ decides to hike interest rates next week, I wouldn’t be surprised to see the dollar index make a sharp move lower.