Leaders-Laggards

Even though Treasury yields shot higher last week, they’ve been rising all along the curve. Above average inflation readings led to fresh interest in TIPS and a new leg higher in this ratio. Junk bonds have been in a persistent sideways pattern relative to the rest of the bond market for two months.

One of the main market concerns was that small-caps weren’t confirming the signal, but that notion ended with a big rally in the Russell 2000. Long-dated Treasuries are still scoring gains despite strength in stocks, which creates the same kind of positive correlation environment we saw earlier this year. Lumber prices are starting to improve following a sharp downturn, while gold has begun to catch some bids again.

Discretionary stocks remain not just one of the top performing growth sectors, but one of the top sectors period. The tech sector was one of the beneficiaries of the shift away from cyclicals despite Apple’s big earnings miss. The cyclical rally looks like it’s on hold in the short-term at least.