Leaders-Laggards

Market sentiment has shifted sharply towards growth sectors, but energy is and should hold up well. Part of this current rally is oversold bounce and part the pivot to growth over defensive/value. If Powell can avoid intimating anything too hawkish coming out of this week’s FOMC meeting, it’s entirely possible this sentiment can carry forward into March.

The anticipation of higher demand from China has lifted crude oil prices, but that hasn’t yet translated into outperformance. Industrial metals have had quite a month and the China reopening should clearly have a positive impact on materials stock prices. It’s been about six months since tech had a turn at the front of the line, but it looks like growth is back again.

Treasuries are in a tricky spot here. Powell may be overly hawkish, but he’s been very consistent in his messaging. And it’s not wise to fight the Fed. The bond market still isn’t buying it though. Who’s right and does it help to break the market? The junk bond market really isn’t giving any warning signs right now. Emerging markets present a really interesting risk/reward trade.