♫ Tell me what's going on (What's going on) ♫
Remember, the Dow Jones Composite includes all 30 stocks in the Dow Jones Industrial Average, all 20 stocks in the Dow Jones Transportation Average, and all 15 stocks in the Dow Jones Utility Average.
It's 65 stocks in total representing this broader measure of US stocks.
And it makes sense that they're hanging in there. This continues to appear more like rotation and less about distribution.
If it was real distribution out of stocks, wouldn't we be seeing more of a bid from the most defensive assets?
No one wants US Treasury bonds, gold, or the Japanese yen. My suspicion is that they would, if things were really falling apart:
It's interesting that precious metals are the only commodities that no one wants.
Look at what the other commodities have been doing. Here you can see the breakdown among base metals, agriculture, and energy:
Precious metals just don't look like that the past two years.
But my biggest question is why some people feel the need to label themselves as "growth investors," whatever that is, despite being in the type of market environment where growth stocks historically underperform other types of stocks.
I just don't see the logic.
We've seen rates doing what they're doing, and we've documented how that impacts different sectors.
In this chart you can see the 10-year US Treasury yield $TNX making new highs, and the equities for the ProShares Rising Rates ETF $EQRR looking very similar:
As it turns out, when you look inside the $EQRR ETF, you'll find a ton of financials and energy stocks. That's why when we equal-weight those two groups, it looks like the other two lines above.
They're moving together.
So what can change these trends? What needs to happen to unravel the outperformance out of the more value-oriented sectors?
I still think it's these two.
We said that crude oil needed to hold 84 and the 10-year needed to hold 1.7%.
That happened:
So, as long as that remains the case, we want to continue to err on these types of stocks doing well.
On Friday, we dropped our latest International Hall of Famers report, which breaks down the biggest stocks outside the United States.
Not surprisingly, energy and financials keep popping up on the relative strength scans. Our Int'l HoF report was no different:
I really like this Canadian midstream name Enbridge $ENB.
If we're above 43 we want to be long $ENB with a target of 56.
Here's the rest of our most recent International Hall of Famers list:
In addition to Energy, you can also see the strength in financials.
Doesn't this chart look a lot like the Dow Jones Composite Average above, but stronger?
As long as we're above that 38.25 level, all seems to be well with this trend.
You can see the continued strength out of the largest component in the Dow Jones Financial Index: Berkshire Hathaway $BRK.A:
We sold naked puts in Berkshire a couple weeks back when volatility spiked, and our targets were hit within a few days.
But, as a group, this continues to be an area we want to focus on.
You can see the relative strength out of both banks and broker-dealers as they follow rates higher:
And it's not just happening in the United States. You can see it in Europe as well.
Look at this chart of equally-weighted European bank stocks:
There's a lot going on.
But these are a few of the areas we're still focused on.
What's on your radar?
What's got your attention these days?
JC