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The Lead-Lag Report: How Jobs Data Has Altered Nearly All Intermarket Trends


Jobs numbers have ended the risk-off trade, at least for now.

If you change the way you look at things, the things you look at change.
--Wayne Dyer

Below is an assessment of the performance of some of the most important sectors and asset classes relative to each other, with an interpretation of what underlying market dynamics may be signaling about the future direction of risk-taking by investors. The below charts are all price ratios which show the underlying trend of the numerator relative to the denominator. A rising price ratio means the numerator is outperforming (up more/down less) the denominator.

For a full version of the Lead-Lag Report, click here.


Financials (NYSEARCA:XLF) – Sideways

Comments: Financials went sideways relative to the market with what appears to now be a resumption of leadership as the yield curve steepens again. The jobs report resulted in meaningful bullishness, making the trend higher.

Long Bonds (NYSEARCA:TENZ) – Yield Curve...Steepening...Again?

Comments: The yield curve looked to be on the verge of flattening before widening following the ADP jobs report. The sharpness of the move was powerful, indicative of a major change in intermarket sentiment. This suggest that the market may be starting to price in demand pull inflation expectations, which would be bullish if held.

Bonds (NYSEARCA:TENZ) – The Test

Comments: Bonds appeared to be in the early stages of leadership, but the ratio utterly collapsed following last week's ADP report. The sharp move was stunning, and has now sent the relationship to new three-year lows.


Consumer Staples (NYSEARCA:XLP) – Breakdown

Comments: Consumer staples were in a strong relative uptrend, signaling increased defensiveness within the market up until last week when a sharp turnaround took place following strong jobs number. The trend for now appears to be broken, signaling justification in the risk-on trade.

Utilities (NYSEARCA:XLU) – Income Breaks

Comments: Utilities went vertical, and then broke down hard much like consumer staples following strong jobs numbers with the release of the ADP report. This is conceivably a bullish juncture, as the risk-off fever internally breaks.

Treasury Inflation Protected Securities (NYSEARCA:IPE) – Sideways or Up?

Comments: The IPE/TENZ price ratio is one way of seeing if inflation expectations are rising or falling within the bond market. When the ratio is trending higher, it means bets are occurring on rising prices ahead. Note that the ratio was falling up until last week. The trend now will be important for confirmation of risk-on sentiment.


The case for a correction appears to be over given the sharp turnaround in various intermarket trends, nearly all of which took place following last week's ADP jobs report release. My firm's ATAC (Accelerated Time and Capital) models used for managing our mutual fund and separate accounts rotated back to stocks on this, but remain ready to get defensive again should risk-on sentiment internally fail to hold.

Editor's note: This update is published every week exclusively for Minyanville, and is compiled by Michael A. Gayed, CFA, Chief Investment Strategist of Pension Partners, LLC.

Twitter: @pensionpartners
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No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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