Leaders-Laggards

Tariffs have almost universally resulted in additional volatility and downside for equities. If this week’s “liberation day” tariffs come in aggressive, as expected, investors may begin to jump ship on cyclicals if they feel a steeper economic slowdown is imminent. Overall, we’re still seeing fairly strong sentiment for risk-off plays and that should add some support for Treasuries.

Even though market sentiment has turned modestly more positive and investors have shifted away from more defensive investments, growth areas of the market have not been the beneficiaries. Risk-off sentiment has moderated over the past couple weeks, but Treasuries are still in an uptrend. The problem is only that they’ve lagged U.S. stocks. I think Treasuries are still in a favorable spot here.

Crude oil prices have stabilized as the U.S. begins imposing geopolitical sanctions that could tighten global supplies, but demand is the real story here. The VIX is still elevated and there’s little sense that the overall mood of the market is changing as long as the trade war and the resulting economic uncertainty are present.