Key Takeaway: Small-caps leading the way higher. No breadth thrusts (yet) but rally participation is improving. Looking for copper & bonds to confirm risk on messages from the equity market.
Energy and Information Technology are at the top of the relative strength rankings. The industry group heat map confirms this strength with Energy and Semiconductor groups (up and down the cap scale) accounting for five of the top ten spots in the industry group rankings.
Relative weakness can be found in Utilities, Consumer Staples and Health Care, trends that are echoed in both our sector rankings and the industry group heat map.
Key Takeaway: Index strength fueled by new found momentum. New highs lists are expanding, but not very rapidly. Persistent inflation, sputtering growth are a headache for the Fed.
Consumer Discretionary has been the top-performing large-cap sector on a short-term basis and was one of only two large-cap sectors to make new highs last week (Information Technology was the other). The sector’s relative strength at the large-cap level is not echoed among mid and small-caps, but it is still fairly broad-based (it’s equal-weight ranking matches its cap-weight ranking).
Energy and Financials have lagged on a short-term basis, but remain at the top of our relative strength rankings across size levels.
Key Takeaway: Risk On/Risk Off Ratio resolving higher. Commodity strength and bond weakness will have some looking for a new playbook. Breadth set up to lead.
Paying attention to relative strength can help in two ways. It identifies leaders, to whom active investors can tilt toward, and laggards, from whom those same investors can tilt away. Up and down the size scale, Energy and Financials are leaders, while Utilities, Health Care and Consumer Staples are laggards.
At the industry group level, mid-cap groups are seeing improving relative strength, while large-cap groups are seeing their relative strength deteriorate.
Key Takeaway: Price volatility fueling sentiment reset. Indexes under pressure as the tide turns against their largest components. Positive breadth divergences lacking.
Higher rates are fueling strength in Energy and Financials - leadership from those sectors can be seen across market cap levels.
Our industry group heat map shows continued deterioration from large-cap groups and improvement from small-cap groups. Some 8% of large-cap groups made new 13-week highs last week vs 42% that made new 13-week lows. Among small-cap groups, it was 17% at new highs and only 13% at new lows.
Key Takeaway: Median stock has gone nowhere for six months. Emerging market trends are improving and commodities are moving toward new highs. Inflation weighing on consumer attitudes is a headwind for the economy.
If shopping in the Energy (or Consumer Discretionary) sectors, look in the mid-cap aisles. The Energy sector is near the bottom of the large-cap sector rankings, but at the top of the mid-cap rankings.
Improving relative strength trends for large-cap Food & Staples Retailing and Utilities bear watching as index-level volatility picks up.
Key Takeaway: New highs lists expand as global markets show strength. Economic recovery falling short of expectations. Bond yields look ready to rise.
The Real Estate and Health Care sectors are relative strength leaders up and down capitalization levels. The Consumer Staples sector is a relative laggard across the cap scales.
Health Care strength can be seen on the industry group heat map with positive readings for the Pharma, Biotech & Life Sciences group. While the Consumer Staples sector is weak overall, the large & mid-cap Food & Staples Retailing groups are improving.
Key Takeaway: Recent laggards bounce into lead. Economic reports add noise to an otherwise quiet week. New highs for Value Line Geometric Index and Commodities would help confirm cyclical strength.
The Financials sector bounced back in the rankings last week, climbing three spots and moving into the second spot overall. Strength within the sector is broadly based as it is at the top of the rankings from an equal-weight perspective.
Thanks to FB and GOOGL, the Communication Services sector is in the top spot on a cap-weight basis. On an equal-weight basis it ranks below everything except Consumer Staples.
At the large-cap level, Transports are near the bottom of our industry group rankings. Mid-caps however, are showing strength and small-caps are improving.
Key Takeaway: Indexes find ways to shrug off disappointment. Beneath the surface, market bending, not yet breaking. Surge in bond yields would sap financial liquidity.
We saw plenty of volatility in the weekly rankings last week (e.g., Health Care rising from #6 to #2, Financials dropping from #1 to #5) but some underlying trends remain intact: Cyclicals (especially outside of Financials) are lagging and the Communication Services sector may not be quite as strong as its current ranking suggests (on an equal-weight basis, it’s ahead of only Energy).
The Industry Group heat map shows nine of the top ten groups are either large-cap or mid-cap groups (mostly large-cap). Nine of the bottom ten groups are either small-cap or mid-cap (mostly small-cap). More on this later.
Key Takeaway: Positive earnings surprises and upward revisions have been setting records. Expectations are now elevated, and economic data is falling short. Macro disappointments, lack of rally participation and widespread optimism could make for a bumpy ride for stocks into year-end.
With a handful of mega-caps driving index-level returns, we want to see sector-level leadership confirmed by similar sector strength on an equal-weight basis, as well as further down the capitalization scale.
Financials are the top-ranked sector in our rankings on both a cap-weight and equal-weight basis. Strength fades among mid-cap and small-cap Financials. Real Estate remains a leader across the board from a weighting and size perspective, though it has slipped on a short-term basis.
Key Takeaway: Bond yields ready to move higher. Trends are still rising and inflation is proving persistent rather than transitory. Financials have been resilient but look for Growth to struggle if bond yields rise.
Key Takeaway: Indexes chopping higher, breadth chopping lower. Commodities leading the pack in 2021. Bonds not fearing inflation.
Health Care made a new high last week and that helped fuel its rise in our relative strength rankings (up to the fourth spot and into the leadership group). Energy and Materials also ticked higher in the rankings, while Consumer Discretionary fell three spots.
Despite an overall theme of large-cap strength, the industry group heat map shows deteriorating conditions across sizes for the Energy and Banks groups.
Key Takeaway: Indexes at new highs as new high list contracts and new lows expand. Real bond yields drop to their lowest level on record. Prices are rising as the path for growth becomes more uneven.
Communication Services and Real Estate swapped places near the top of our relative strength rankings for the S&P 500. While Real Estate strength persists through the equal-weight version of the rankings and down the market cap scale, Communication Services relative strength appears to be more selective.
Our industry group heat map reflects recent strength among large-cap groups and relative weakness from the mid-cap and small-cap areas of the market.
