From the desk of Steve Strazza @Sstrazza
Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Resolutions For Rates
This could be the single most important chart in the world right now. We cannot understate this development.
We finally got a major resolution in the US 10-year yield, reclaiming that critical 1.40% level this week. And this begs the question as to what a rising rate environment might mean for investor portfolios. The first thing we know for sure is that we want to stay away from bonds, unless we’re shorting them of course. The second, and perhaps most important implication, is the renewed tailwind for cyclicals. When rates are rising, sectors like financials, industrials, materials, and energy are all typically outperforming, which is exactly what we’ve started to see in the last week.
As for the broader market, perhaps this fresh breakout in yields is what was needed to kick off a new run-up for risk assets. What we’re watching for now is whether or not we finally start seeing similar resolutions in key charts such as Small-Caps, Financials, diversified international indexes, and even Oil.
While you could argue that yields are only one data point, it’s a very pivotal one. We can’t stress just how bullish a decisive breakout for yields would be.
