• Energy, which was near the bottom of the rankings from both a cap-weight and equal-weight basis as September began, has continued to gain strength. It has been the top performing sector on a short-term basis (as well as on a YTD basis) and has climbed into the middle of the overall rankings and is at number 2 on an equal-weight basis.
• Health Care and Real Estate have dropped in the rankings, though the industry group heat map shows there remain pockets of strength at the industry group level within the Health Care sector.

From the desk of Willie Delwiche.

The story this week was bond yields and the mounting evidence that they are ready to move higher. 10-year yields in the US and Germany have climbed to their highest levels since July. The US 10-year T-Note yield has broken above 1.40% and could soon have 1.75% again in its sights. A 2-handle by the end of the year would not be surprising. Except for the May/June time period, German yields are the least negative they have been since crossing the zero threshold in mid-2019. These moves may reflect inflation expectations, but with the rise in the 2-year T-Note yield this week (highest level since March 2020) it is also the bond market taking seriously the possibility that the Fed will soon be joining the 30% of global central banks that have already begun to raise interest rates. For investors, this could be an opportunity to rotate back into cyclical sectors that do well in rising rate environments.

This is the video recording of the September 23rd Weekly Town Hall w/ Willie Delwiche.

09/23/21 2PM ET

From the desk of Willie Delwiche.

I'll admit it. I'm a Fed-watcher from way back. I enjoy it as much as anyone, and probably more than most (especially those within the All Star Charts community). 

While I never had to analyze the weekly money supply numbers to figure out what the Fed was doing, I've remained attentive as the Fed has revamped its mode of communication with the market time and again.

The latest iteration -- a written statement and press conference after every FOMC meeting coupled with summary economic projections released four times a year -- reflects the Fed's desire for transparency. It also supports the belief that forward guidance is a powerful tool at a time when interest rates are stuck near zero.

Market participants listen, absorb the message and the forecasts, and react. We did this dance again this week.

Here’s the latest batch of forecasts from the Fed:

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

Key Takeaways:

• • Volatility shifts affect investor risk tolerances
  • Portfolios positioning reflects cautious message from weight of the evidence.
  • Watching to see if evidence argues for increasing exposure or getting more defensive

When volatility picks up, there can be a natural desire to review and reconsider or reduce all long exposure. This impulse reflects the reality that for many, risk tolerance is higher in periods of strength than in periods of weakness. Our view is that proactive risk management can lead to better outcomes than reactionary decision-making. 

That is a major reason why we spend so much time reviewing and discussing the weight of the evidence. We don't know what the future will hold, but we can increase the odds of looking in the right direction by watching where the wind is blowing. While always open to new information, we do not want to over-react to a situation that has already been accounted for.

• Financials moved back into the top spot in this week’s rankings. It holds the top spot in the equal-weight version of the large-cap rankings as well, suggesting broad strength within the sector. Utilities & Materials saw big drops in the rankings and relative weakness in those sectors is present across various capitalization levels.
• Sector-level weakness in Utilities is confirmed in our industry group heatmap. Other areas of broad deterioration include Capital Goods, Tech Hardware, and Real Estate.

From the desk of Willie Delwiche.

In 2021, every month except April has seen the S&P 500 testing its 50-day average. Only after the initial test in February did the index fall further below that average than it is doing in September. The pattern so far this year has been tests of the 50-day that ultimately resolve higher. Whether that happens this time remains to be seen. With investors re-evaluating their bullish views on stocks, bond yields starting to rise and the action beneath the surface showing increasing vulnerability, we want to see evidence of upside resolution rather than just assuming it is on its way. 

This is the video recording of the September 16th Weekly Town Hall w/ Willie Delwiche.

09/16/21 2PM ET

From the desk of Willie Delwiche.

It was the final stretch of the last sailing race of the day on Lake Michigan. 

A couple of my good friends squeezed the race in just before the weather started to deteriorate. They could see clouds in the distance. The wind was picking up and gusts were intensifying. 

In the boat, the cool-handed skipper was catching as much of the wind as he dared, the boat heeling sharply to one side. Those on the high side were leaning over the edge as far as they could without losing their grip. Those on the low side worked their ropes, trying to avoid getting swamped as the rail dipped below the surface of the water.

But a huge gust came up as the finish line came into sight. 

It was powerful enough that those on board took a deep breath, expecting to soon find themselves tossed into the lake. If the boat was going to capsize, this would be the moment…

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.