The Lead-Lag Report: Putting the Bulls on Notice
While the stock market has trended up this year, there’s been a lot more mixed activity behind the headline numbers. That’s because some sectors have led, particularly any tech stock related to AI.
Other sectors have been mixed. That includes defensive sectors like utilities and consumer goods companies. And assets like Treasuries have been mixed as well, as the Federal Reserve has nearly finished raising interest rates.
Those defensive sectors are now trending higher at the same time, the first such move in 2023. Even during the debt ceiling drama and the bank failures earlier this year, these assets moved differently.
That could be a sign that market risk is rising. And that moving to a defensive, or risk-off, position may be wise. It may not mean an immediate or large market drop.
But following a big rally, it could mean a few weeks of pausing and pulling back before trending higher. Traders with leveraged long positions may want to scale back on those trades for the time being.
Those looking for safety right now could look at utility stocks. These companies have underperformed so far this year relative to the S&P 500. But that trend could shift in a market selloff. And the space offers decent valuations and moderate income while investors wait out a potential market storm.