Summary
Utilities have been a fairly good reflection of where short-term sentiment has been this year and that’s to say it’s been all over the place.
Consumer staples continue to trend higher, confirming the pattern we’re seeing across a number of traditionally defensive asset classes.
Healthcare has been a bit of an outlier in terms of market direction for several weeks, which makes me inclined to tap the brakes on getting too excited here.
Below is an assessment of the performance of some of the most important sectors and asset classes relative to each other with an interpretation of what underlying market dynamics may be signaling about the future direction of risk-taking by investors. The below charts are all price ratios which show the underlying trend of the numerator relative to the denominator. A rising price ratio means the numerator is outperforming (up more/down less) the denominator. A falling price ratio means underperformance.
LEADERS: ALL RELEVANT ASSETS CLASSES ARE BUILDING CONSENSUS AROUND A POTENTIAL APRIL EVENT
Utilities – Getting The Story Right
Utilities have been a fairly good reflection of where short-term sentiment has been this year and that’s to say it’s been all over the place. The sector has done quite well over the past couple weeks and I tend to believe it’s getting the story right here. We’re getting confirmation from so many other asset classes - Treasuries, gold, lumber, small-caps - that it feels like we should pay attention to the message.
Consumer Staples – Confirming The Narrative
Consumer staples continue to trend higher, confirming the pattern we’re seeing across a number of traditionally defensive asset classes. The volatility we’ve seen in this ratio throughout 2022 and into 2023 is unusual based on history, but I don’t think it can be ruled out from happening again. With so many variables at play - banks, inflation, the Fed, recession, geopolitics - it wouldn’t be surprising to see this ratio move sharply higher at some point.
Health Care – Needs Some Time To Play Out
Healthcare has been a bit of an outlier in terms of market direction for several weeks, which makes me inclined to tap the brakes on getting too excited here. The outperformance in this sector makes sense given how macro conditions are still deteriorating, but it’s still a little surprising to see it. Given how it’s been largely uncorrelated to any particular sector or trend for a while, we should probably give this a little more time to play out.
Energy – OPEC Offers A Lifeline
Energy stocks got a boost from OPEC’s surprise crude oil production cut and they’ve been able to hold onto those gains for now. There seems to be a fair amount of interest in keeping supply and demand balanced around the current $80 price range and that could help limit some downside risk should energy demand shrink considerably.
Technology – The “Growth As Safety” Trade Finally Fading
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