Leaders-Laggards

Staples took a step back last week amid the return to growth stocks, but I think the sector is still looking short-term positive. As long as GDP growth remains positive and the labor market remains tight, investors may be unwilling to budge on lifting credit spreads anytime in the near future. After a month-long decline, the stabilization of long-term interest rates has allowed the greenback to start moving higher again.

Utilities have made a strong comeback over the past couple weeks in one of the strongest short-term risk-off signals in the entire market. Healthcare is having its biggest breakout in at least a year and it makes a lot of sense. Even though Fed expectations have tempered somewhat, there's still the potential for more bond market volatility over the next quarter or two.

The small-cap rally, especially relative to the S&P 500, has been impressive, but the one thing I’d feared here looks like it might be happening - getting rejected at its 52-week highs. Despite getting stretched thin, the long bond rally isn’t necessarily done yet, but it needs conditions to match up with expectations to hold on to these levels. Interesting to see that defensive equities staged a minor comeback to close out the year, a time when low volatility generally favors riskier strategies.