Leaders-Laggards

This is now a much more balanced market where cyclicals are getting a longer look as the monetary easing cycle begins. My signals, however, continue to be mixed and the performance of utilities is a big reason why. The longer-term uptrend in Treasuries remains in place, but it’s clear that short-term conditions have shifted a bit.

The combination of durable retail sales and spending numbers with lower interest rates are driving a solid rebound in discretionary stocks. It appears to be flying under the radar that utilities is still the best-performing sector this year. We may not see a meaningful move lower in long bond yields until we get more evidence that the economy is slowing and that’s created the opportunity for the yield curve to un-invert.

Until utilities, gold and/or Treasuries break down, this looks like a risk-off market. A more modest quarter-point cut from the Fed this week could be met with investor relief and a short-term shift back to equities, but a half-point move could incite panic and send Treasuries flying higher. While investors likely had no complaints about last week’s 8% gain in tech stocks, they should be concerned with the volatility they’re seeing.