TD Ameritrade Network Appearance: Talking about Breadth and Rates with Oliver Renick

Market Breadth: We discussed how indexes like the S&P 500 have been making new highs while the trends beneath the surface have been deteriorating. This is well represented by the chart that shows our combined (US + Global) trend indicator. This is a composite of the trend work we do for S&P 1500 industry groups (US) and for the ACWI country-level indexes (global). This trend indicator peaked in late January and has been moving lower since then. 

While that has not prevented the S&P 500 from making higher highs, it has left the market with less support beneath the surface and thus more vulnerable to price correction. In light of these trends and other breadth indicators we like to lean on, recent resiliency from the S&P 500 has been a historical exception, not the rule.

Interest Rates: Our conversation also touched on the recent move in interest rates - whether the turn higher is sustainable and what that might mean for investors. I see the recent rise as a resumption of the trend higher that emerged over the course of 2020. That trend continues to get the benefit of the doubt and appears likely to reassert itself. 

Moving beyond inflation memes (e.g. used cars), inflation is looking less transitory. Inflation bottomed a decade ago - it had been drifting higher and is now accelerating higher. While the move higher in bond yields may weigh on growth stocks generally and US mega-caps in particular, we have been seeing improvement within cyclical value sectors. 

It is particularly noteworthy that even as yields were working off some of the excesses from earlier this year, Financials remained resilient on both an absolute and relative basis (remaining near the top of our relative strength rankings). They have been the strongest sector over the past year and trail only Energy on a year-to-date basis.