Leaders-Laggards

Utilities continue on their tear relative to the S&P 500 and it remains one of the strongest risk-off signals in the market right now. Treasuries look like they might finally be establishing a bottom here and, more importantly, acting as a risk hedge to equities. The next big catalyst for the dollar could come from Japan where the BoJ is loosening the band on yield curve control, which could be negative at the margins for the yen.

All of the traditionally defensive equity sectors & strategies are confirming the move in utilities, which suggests this rally may have legs. We’re beginning to see credit spreads move sharply higher again over the past couple weeks and that tends to correlate strongly with gains in Treasuries. Based on other signals, I think lumber/gold is telling the correct story here.

Flight to safety trade continues to build and expand, with health care and communication services leading the way. Technology sector shows signs of instability and weakness, with volatility indicating potential market instability. Credit risks are growing in European banks, while the U.S. dollar shows a flight to safety in motion.