Seasonal Weakness Begins

Higher Volatility Ahead?

U.S. equities keep pressing higher to new all-time highs on the heels of supportive corporate earnings results, steady if not strong data on the labor market front and, most recently, more signs of easing trade tensions. The U.S.-Japan trade deal isn’t necessarily an improvement on trade conditions from before Liberation Day, but it does mark the de-escalation that the market has been looking for leading up to the August 1st deadline.

Overall, it’s unlikely we’re going to see any major trade deals between now and then (with the possible exception of the European Union), but the increase in clarity and decrease in the risk of further inflationary tariffs is what the market is focused on. That’s continuing to provide a bullish backdrop while the increased push for rate cuts by certain members of the Fed adds the liquidity boost. Market volatility is at its lowest level since February and provides further confirmation that the bulls are still in control.

Or so it would seem. Over the past 2-3 weeks, however, long-term Treasury yields have been trending lower and utilities have quietly been outperforming the S&P 500. Short-term conditions may actually be turning a bit here even though the headlines are screaming how equities keep setting a new series of all-time highs. Value and low volatility stocks have been holding up relative to growth and high beta, respectively, which suggests that short-term sentiment is actually much more neutral than bullish.