Leaders-Laggards

Utilities stocks have been turning more volatile in recent weeks, lagging since election day, but since rebounding in the nascent defensive shift. After an initial post-election bounce, small-caps are starting to get a head of steam again. This is the behavior we’d expect in an environment where business conditions are likely to get more favorable. Long bonds finally had a big week, but is it sustainable?

After an initial pop & consolidation following the November election, small-caps may finally be springing back to life. The rotation into value stocks is certainly happening, but the long-term outlook will still be heavily dependent on the direction of inflation & interest rates. The biggest risk to the dollar is likely the yen, which threatens to strengthen sharply if the BoJ pulls the trigger on a December rate cut.

The huge positive momentum around crypto right now might actually be a bad thing for this sector. Some consolidation is to be expected, but small-caps so far haven’t quite gotten the bump that I would’ve expected. High yield spreads are nearly touching all-time lows, only seeing lower levels during the late 1990s and around the financial crisis.