Leaders-Laggards

I’d like to see a little more conviction out of utilities before getting more comfortable saying this is a trend, but it has been tilting in that direction. Equity investors appear satisfied that bank liquidity issues are largely resolved. The huge tech rally that dominated the 1st quarter of 2023 has come to an end. Government bonds are again struggling to confirm the risk-off trade.

Utilities continue to signal that short-term sentiment is very hot and cold based. The bottom in financial stocks looks to be in and the earnings results we got last week from JPMorgan Chase and Citigroup are likely to reinforce investor confidence further. With regard to bonds, conditions are favoring the return of the “recoupling” narrative soon. Lumber could signal one final blowoff in risk asset prices.

Utilities have been a fairly good reflection of where short-term sentiment has been this year and that’s to say it’s been all over the place. It appears that the “growth as safety” trade might finally be fading out here. Long-term Treasury prices are at their highest level since the end of last summer. It looks like the worst may be over for bank stocks.