The major U.S. equity averages finished up again on the week, but it’s the past three days that were really interesting. They marked a major reversal of the risk-on trends that have been in place pretty much non-stop since the beginning of May. All of the previous laggards - utilities, consumer staples, value, low volatility - outperformed the market sharply. Mega-caps and tech underperformed, while lumber prices fell by 6%.
Is this a sign of a more significant reversal of this summer’s risk-on trade? It’s three trading days, so it’s not exactly a huge sample size, but it’s also remarkably similar to what the markets did at the beginning of the year when I said conditions favored a melt-up in January. That was when lumber prices, small-caps, tech and high beta stocks made very sharp & quick moves higher, which ultimately ushered in a huge bull market rally in the first half. This past week, a similar pattern emerged, only in reverse.
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