Leaders-Laggards

Non-energy cyclicals are still holding up well here even though risk-off behavior continues to emerge. The latest PMI report scheduled to hit this week is likely to tell us that the manufacturing sector is officially contracting after slowing for the past year. Falling interest rates have taken some of the bite out of bank stocks lately, but that doesn’t take away from the fact that conditions have definitely improved.

Industrials have slowed down a bit over the past couple weeks, but that’s understandable given the recent breakout. The commodities market continues to stabilize, but I’m worried about the performance of lumber here. The latest decline in interest rates has already resulted in a short-term spike in mortgage activity, which in isolation should give the sector a bit of a boost.

Energy prices remain elevated and there’s optimism that China may slowly begin easing some of its COVID restrictions. Even though industrials underperformed during last week’s pivot to growth, the sector remains one of the market’s hottest. In a vacuum, last week’s decline in rates is a negative for the banks, but the overall environment looks improved.