Leaders-Laggards

The past two weeks have easily been the most powerful move for utilities of 2023. While tech and growth have had their ups and downs this year, communication services has been the most reliably uptrending sector of the market. Treasuries are starting to demonstrate some weird behavior. Long bonds continue to underperform, but the time for this group may be nearing.

As long as the markets believe that inflation is cooling and the Fed may be done hiking rates, growth sectors could remain in the lead, but a lot will depend on what happens with August CPI this week and the Fed next week. There’s simply very little concern from investors that default risks are rising as evidenced by higher consumer credit default rates and corporate bankruptcies.

Tech continues to make a roaring comeback on the belief that the “healthy growth with elevated inflation & the risk of rate hikes” economy that’s existed throughout much of 2023 is transforming into “healthy growth with cooling inflation & the end of rate hikes”. Is the optimism for junk bonds warranted? I’d almost certainly say no given how credit conditions are worsening yet high yield spreads are still incredibly low.