Leaders-Laggards

As long as the markets believe that inflation is cooling and the Fed may be done hiking rates, growth sectors could remain in the lead, but a lot will depend on what happens with August CPI this week and the Fed next week. There’s simply very little concern from investors that default risks are rising as evidenced by higher consumer credit default rates and corporate bankruptcies.

Tech continues to make a roaring comeback on the belief that the “healthy growth with elevated inflation & the risk of rate hikes” economy that’s existed throughout much of 2023 is transforming into “healthy growth with cooling inflation & the end of rate hikes”. Is the optimism for junk bonds warranted? I’d almost certainly say no given how credit conditions are worsening yet high yield spreads are still incredibly low.

Technology sector is driving the market higher, but the broader market is struggling. Communication services stocks are losing momentum and may struggle to maintain their uptrend. Regional banks in the financial sector are facing pressure due to higher deposit costs and exposure to commercial real estate.