The Lead-Lag Report: Undeniably Bullish
Regardless of whether internals are improving due to central bank policy action or not, market internals remain undeniably bullish for risk assets, as new all-time highs in stocks appear ever more likely in the coming weeks.
Utilities (XLU) – Unrelenting Continuation
Comments: Utilities continue to break down, and appear to still have further to fall. This remains a positive sign for markets given the role utilities has as a "place to hide" in equities when volatility is rising and recession fears increase. The underperformance has been unrelenting.
Emerging Markets (VWO) – China Catalyst?
Comments: It appears third time may be the charm for emerging markets as a third bottom may now be in place. The group has has a hard time leading, but a spurt of strength driven by China stimulus hopes may be just the catalyst needed for sustained leadership. I maintain that the next major rotation likely in the fourth quarter is in emerging economies.
Intermarket trends remain favorable for equities, and the cyclical trade remains the most important to watch. The next rotation likely is in emerging markets, financials, and anything most sensitive to rising inflation expectations, which appear to be forced upon us by SuperBen and the League of Extraordinary Bankers.
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.
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