361 Capital Weekly Research Briefing: Invincible, Indomitable, Unbeatable?
U.S. equities look like a superhero right now. Bond yields plunged after the Brexit and stocks surged. Then last week bond yields suffered their worst weekly spike in three years and stocks rose. Under the surface of equities, sector rotation and leadership changes also appear to be occurring. Industrials and Materials continue to attract investors. (Do GE and MMM go up everyday?) Small caps are gaining ground versus large caps. Overseas, emerging markets are the most in demand. Even under the surface of fixed income, junk and emerging market bond demand has outpaced higher quality bonds, while interest in junk EM credit is like playing Pokemon Go in Central Park.
Why are investors’ appetite for risk rising and stocks acting bulletproof? The world is moving past Brexit worrying and focusing once again on the data and numbers. Early earnings reports look good and investors have been pleased by rewarding the stocks (of course the bar was set low). U.S. & Global economic data is coming in better than expected. Industrial commodity prices are moving higher. Demand for credit has opened the windows of financing for bond sellers and even lifted the window for a few well received IPOs to go public. It will be a very busy week of earnings and more datapoints. As you listen to the calls and read through the reports, keep an eye on markets for further rotation into the newer areas of leadership.
Last week saw the largest increase in 10-year Treasury yields in three years…
A 16.8% increase in yields off of a small base may not mean much unless you actually felt the hit of owning a 10-year bond. For those investors, it will leave a mark and they might think twice about buying that 10-year bond for a trade the next time it comes around.
Given the significant move in yields, Goldman has a good reminder of the stock sectors most affected by changes in Treasury yields…
Not surprisingly, the market saw outperformance in Financials and Industrials last week while Utilities and Staples underperformed.
(Goldman Sachs)
To read the 361 Capital Weekly Research Briefing in its entirety, please visit: http://hvst.co/29W7nWM
