We saw a very strong finish last Thursday for stocks as we went into the long holiday weekend. We’re seeing market breadth and participation remain resilient, but you know me - I’m always on the lookout for cracks in this rally.
A few weeks back, some cracks surfaced when energy was outperforming. If you recall, that was around the time of the peak tensions between Israel and Iran.
But then technology came roaring back, the crack was mended. Last week, we saw another sector assume leadership. What does this mean for the state of the rally going forward?
Ease Up on the Growth?
The best-performing sector last week was basic materials (XLB). This is an interesting short-term leader, because it can mean one of two things, or both.
We just passed a bill that’s basically worth $5 trillion dollars in stimulus. Plus, we have the Fed that’s likely to lower rates come September.
So, as you can see, there’s a lot of growth being priced into the market, but with growth, comes inflation - that’s the catch.
Inflation has been an Achilles’ heel for the market in recent years, but if we zoom out and take stock of the longer-term leaders, we still see sectors like tech, industrials, and financials leading.
And simply put, this is not the type of leadership you’d see if the market was about to roll over significantly.
I’ll keep you posted, because right now, I’m more focused on profit-protecting than anything else. Talk soon,
-Gianni