Leaders-Laggards

The current strength of outperformance in dividend stocks matches what we saw during the first reverse yen carry trade last summer. Historically, the U.S. economy has entered recession within about 12 months of the 10Y-2Y Treasury spread flipping positive. That happened back in September and it looks like we could see that play out again.

Utilities have pretty consistently been signaling risk-off throughout 2025 and that trend appears to remain firmly in place. Now that it’s getting the support of other defensive sectors, value, low volatility and Treasuries, there’s a good chance that this trend has an opportunity to push higher for longer. Bonds are finally starting to rally here and look more like a traditional risk-off asset every day.

If the enthusiasm around the Chinese tech sector is justified and the country is preparing to invest in infrastructure and private sector growth, there could be a real positive story developing here. Junk bonds are beginning to show a little vulnerability here as Treasury yields fall and high yield spreads tick modestly higher. If we get another month or so of negative data, I think we need to acknowledge that the current expansion might be coming to an end.