Leaders-Laggards

Last week’s banking sector developments may have actually been a positive for utilities. Tech is quietly having another breakout relative to the S&P 500. After several fakeouts by Treasuries, this looks like it might be the real deal (even if it only took a banking shock to do it). I don’t think there’s any evidence that there is a systemic failure in banks occurring yet.

Despite expectations for higher rates throughout 2023, which should be hurting growth sectors, tech has consistently been one of this year’s biggest winners. There are absolutely no signs here that investors are worried about credit quality. The influx of economic data and central bank announcements over the next two weeks will likely add to volatility in the dollar.

The better-than-expected economic data from January has sparked a bit of a reflation trade in cyclicals in recent weeks. Despite the shift away from growth, tech is still holding up pretty well here. No one particular area of the market is asserting dominance, but the trend back towards utilities is something I talked about a few weeks ago. Any firmly hawkish messaging from Powell, which should be expected at this point, could confirm and extend the dollar rally.