Leaders-Laggards

The combination of durable retail sales and spending numbers with lower interest rates are driving a solid rebound in discretionary stocks. It appears to be flying under the radar that utilities is still the best-performing sector this year. We may not see a meaningful move lower in long bond yields until we get more evidence that the economy is slowing and that’s created the opportunity for the yield curve to un-invert.

Until utilities, gold and/or Treasuries break down, this looks like a risk-off market. A more modest quarter-point cut from the Fed this week could be met with investor relief and a short-term shift back to equities, but a half-point move could incite panic and send Treasuries flying higher. While investors likely had no complaints about last week’s 8% gain in tech stocks, they should be concerned with the volatility they’re seeing.

Even as cyclicals pull back, financials continue to be a market leader in 2024. The recent bounce could be due to a couple of factors. Consumer staples stocks have really benefited by falling into the market’s sweet spot right now. Stock/bond correlations have turned negative again and that’s definitely a good thing for investors.