Leaders-Laggards

The steady outperformance coming from utilities despite the broader market’s continued push towards fresh record highs is probably a signal that shouldn’t be ignored. Due to lumber shortages and strength in the housing market, there’s bound to eventually be a mean reversion coming. The dollar falling is consistent with what we’d expect when rates are falling and inflation is inching upwards.

The tech sector has rebounded in a big way from this ratio’s low earlier this year. It’s been a bit of a struggle, but the discretionary sector looks like it’s trying to outperform here. The S&P 500 has outperformed the utilities sector over the past couple weeks, but this feels a bit like a false flag signal.

Last week I noted that “this could be a signal that the recent tech slump was overdone and could be looking to make up some ground”. Interest rates have remained roughly flat over the past few weeks, which has kept banks and financials from pushing higher and extending their recent rally. The materials sector pulled back along with other cyclical sectors, although the fundamental background still looks favorable.