Stocks continued to squeeze last week, and by Friday’s close, bears were starting to question their position. We’re seeing a little bit of selling to start the new week, and any additional downturns from here will provide plenty of clarity towards the state of this market’s trend.
But that’s just the surface level. We’re more focused on what’s going on internally, and over the past week, we’ve seen more noteworthy improvements.
We haven’t gotten the “all clear” signal yet, but it’s coming ever closer. When it comes, you’ll want to be prepared.
The Growth Rebound Continues
There was quite a reshuffling of the sector leaderboard this past week. This tells us that the direction of money flows in markets is shifting, and it’s key that we keep up with these flows if we seek to stay aligned with the strongest trends.
Technology (XLK) narrowly missed being the strongest sector on a weekly basis for the third time in four weeks, but it did capture the 30-day leadership position. This is not a negative development in of itself. Remember, tech is 30% of the S&P 500.
Industrials (XLI) was the top-performer last week. This can mean one of two things: 1). The market is pricing in higher economic activity against the narrative of an imminent recession, or 2). Inflationary pressures are starting to tick higher. Industrials outperforming is generally a bullish sign for stocks in any event.
Year-to-date, we still see utilities (XLU) as the top-performer. This isn’t a surprise, and it’s not a bullish signal. We need to see this change sooner than later.
But on the one-year basis, we’ve seen communications (XLC) reclaim the throne. This is a good sign as it signals flows into growth sectors are taking place.
So, in taking stock of the sector leadership board, we note that “risk-on” sectors account for three of our four positions. We’re almost back into a full “risk-on” signal here.
As always, I’ll keep you in the loop,
-Gianni
