Leaders-Laggards

Despite occasional road bumps, including trade tensions and geopolitical events, investors have largely digested these events in stride. The latest escalation in the trade war may stall the current uptrend, but the non-reaction by the markets in Monday’s trading suggests investors could handle this one calmly as well. This week’s CPI data may also be a bond market mover. Overall volatility risk has been rising.

Conditions may really start to improve soon for banks. Falling interest rates aren’t likely to help any, but there’s a clear deregulatory tailwind that’s already developing here. The passage of Trump’s tax bill clearly had a positive impact on the junk bond market. Following the passage of the Trump tax bill, the market has become much more interested in cyclicals.

Clearly enthused by the idea that rate cuts might be near, investors remained in a risk-on mood, especially towards the growth stocks. Treasuries are quietly developing a little momentum of their own. Lumber/gold is finally beginning to move higher due to movements in both sides of this equation. Even though rate cuts should be comparatively more beneficial to small-caps, it’s large-caps that continue to get all of the interest.