Growth stocks seem concerned with only one thing – printing fresh highs.
The Tech sector ETF $XLK posted new 52-week highs yesterday. And the Communications ETF $XLC rallied within reach after taking out its Aug. ‘22 pivot highs.
So where does that leave bonds and other long-duration assets?
If these base breakouts across growth sectors hold, I imagine bonds have some serious catching up to do…
Why?
Growth stocks tend to trend with bonds since they’re both long-duration assets. Changes in interest rates directly impact US Treasuries and affect tech stocks more than other equities.
Check out the tight relationship between the Long-Term Treasury ETF $TLT and the Technology sector $XLK:
Notice how these two ETFs peaked and troughed together during last year’s primary downtrend.
Interestingly, this strong intermarket relationship broke down early in the year. TLT continues to churn sideways while the tech sector catches higher.
Divergences such as this are commonplace. But strong relationships like those between TLT and XLK often fall back in line.
Here’s the big question…
Will TLT catch a bid toward tech stocks?
Or, will XLK drop down to bonds?
I’m leaning toward the former based on the weight of the evidence…
Technology and communications indexes are completing reversal patterns, indicating new uptrends are underway. Fresh lows for the Copper/Gold and Regional Banks vs. REITs $KRE/$IYR ratios suggest lower rates. And key procyclical bellwethers such as Freeport McMoRan $FCX continue to carve out multi-month topping formations.
