Hi Everyone,
We saw a clear divide at the level of the main sectors today, with the impact of the surging Treasury yields being evident throughout the session, giving a boost to cyclical issues. The rate-sensitive utilities, real estate stocks, and tech issues, in particular, struggled to join the cyclical rally, while the defensive healthcare and consumer staples sectors were also under pressure. The energy sector outperformed the broader market by a wide margin, with the average stock gaining nearly 3.5%, boosted by the rally in crude oil and natural gas.
Traders said that today’s rally among cyclicals and small-caps might have signaled the start of the next phase of the bull market. As one trader explained, “Today’s session resembled this spring’s trends, with rising yields and cyclical stocks dominating, and should these conditions persist, the Dow might lead the way higher in the coming weeks and months.”
The seven-day average of new COVID cases hit its lowest level in six weeks over the weekend, while the decline in hospitalizations has been accelerating as well in recent days. The positive trends could mean that the Delta-fueled wave will not put any more pressure on the domestic economy, and growth could once again surprise on the upside in the fourth quarter. That said, the fate of the Biden administration’s spending packages will be crucial for the economy, so this week’s votes could lead to wild swings on Wall Street.
The European gas shortage, which is still likely to be a short-term phenomenon, is starting to have a major impact on global energy markets. The Brent crude oil contract closed at a nearly three-year high today, getting close to the $80 per barrel price level, and while the U.S. WTI contract is lagging behind its main global peers, it’s also just below its pandemic-era low. While U.S. consumers are unlikely to be severely impacted by the price surge anytime soon, the supply disruptions could put pressure on European and global growth and, in turn, global risk assets.
“Don’t go through life, grow through life.”
Eric Butterworth
As always, have a great evening and stay tuned!!
