Hey trader,
Stocks capped off another impressive week going into the holiday weekend. Now it’s straight back to business.
Weekend headlines pointed to deal progress with Iran. Equity futures have hit new all-time highs across the board, much to the dismay of the doom and gloom crowd.
It doesn’t get more bullish than new all-time highs.
This rally is making its mark in the record book. That doesn’t mean we can completely ignore the internals though.
One specific signal from last week is worth your attention as we close out May. Today, I want to walk you through what utilities are telling us right now.
I’ll cover why it matters more than the headlines suggest. Then I’ll show you how to position yourself if a pause is coming.
Are Utilities Warning of a Pause?
|
Performance Leader |
1-week |
30-day |
YTD |
1-year |
|---|---|---|---|---|
|
Sector |
Utilities (XLU) |
Technology (XLK) |
Energy (XLE) |
Technology (XLK) |
Since the low in March, the tech sector has absolutely dominated the market. It’s broader Since the March low, the tech sector has absolutely dominated the market.
Its broader outperformance continues. I’m still looking for a rotation within the tech space into areas like hardware or software.
But last week, technology wasn’t the top-performing sector. Utilities took the crown.
We know the AI trade has tremendous power needs. It’s no different than selling pickaxes during the gold rush versus participating in the actual gold rush itself.
Here’s the catch.
Traditionally, utilities outperforming was a signal that money is seeking safety within the equity space. It’s the kind of defensive rotation you see when institutions start getting nervous about valuations.
In recent weeks, there were a few instances where energy was the one-week leader. Tech kept overtaking it again.
That’s the pattern of a market still in risk-on mode. Utilities breaking through changes the conversation a bit.
The S&P 500 has rallied for 8 weeks in a row. It’s only natural to expect a pause at some point.
The latest outperformance from utilities should be a sign that an internal rotation is underway. This could cut two ways depending on what’s driving it.
To be clear, this market still has legs.
It could just be that these utility stocks are benefitting from exposure to AI’s power needs. That would make this less about defense and more about a new growth narrative emerging.
That doesn’t mean you get to ignore cautionary signals when they arise. The smart play is to respect both possibilities and let the tape confirm which story is real.
Remember, in trading, it’s not just about what you make. It’s about what you keep too.
Take Care,
Gianni Di Poce
