Cyclicals Begin To Benefit

The Fed Is Behind The Curve Again

The markets are starting to shed their risk-off sentiment and become at least more neutral in the near-term. The movement, however, is benefiting cyclicals, not growth. The magnificent 7 trade in the past would have been a primary beneficiary of investors migrating away from defensive stocks. Now, they’re turning back to industrials, financials and energy instead. That could be an extension of the softer tone that Trump recently took regarding tariffs, but it strongly suggests that investors aren’t in a mood for growth anymore. The dark cloud of a potential economic slowdown has investors spooked and that’s likely to prevent longer-term bullish sentiment until it gets resolved.

The economic data showed modest improvements last week. Retail sales rebounded in February, while manufacturing and housing showed signs of an uptick in activity. Is it window dressing at this point? Perhaps. Tariffs will likely take some time to get baked into the numbers and the back & forth on policy is probably going to create volatility above anything else. Ultimately, it comes down to sentiment. Investors have pretty clearly demonstrated that they’re nervous about what’s happening and are unlikely to risk up their portfolios under those kinds of conditions.