Leaders-Laggards

Even as rate sensitive sectors got hammered last week, utility stocks are still holding up fairly well here. If it’s reflation, cyclicals have been leading, but when it flips back over to inflation, tech & growth take over again. The cyclical growth narrative seemed to benefit small-caps to some degree, but investors never fully seemed to buy in, even with a Fed rate cut cycle priced in.

It’s modestly curious that utilities (and gold for that matter) are outperforming as they have while long-term Treasury yields are on the rise. The current environment has been kind to small-caps overall, but progress has been mild and unsteady. Obviously, there’s a big rally in gold happening, but the divergence between it and lumber is growing.

Utilities are joining Treasuries and gold in confirming that short-term conditions actually look more risk-off than risk-on. A lot of the data is suggesting that inflation might be heading higher before it heads lower again. The markets remain unimpressed by the Bank of Japan’s lack of action and the struggles of the yen exemplify that.