Market review 23.07.02

Risk-on within a dynamic regime

Hello everyone,

Happy Canada Day & Independence Day weekend.

Today, I’ll reiterate that stocks are currently in risk-on mode. However, be agile as we may continue to be in a very dynamic world.

Risk-on Continues

Both the price action and positioning data have been telling us for a while to be very bullish on equities.

This week, we got important price confirmation – in many different forms.

First, the recent pullback found a floor at important support levels before markets sharply resumed higher. A key focus of mine has been the tech sector, and the XITK ETF produced a 5% gain this week after retesting a clean base:

We got new monthly charts this week, and industrials have decisively come out of a 2-year base!

Consumer discretionary is another very strong area.

Hotels, airlines, cruises, casinos, online retail, and homebuilders are some of the strongest segments of the market. ETFs such as IBUY, CRUZ, JETS, ITB, and XHB were each up between 15-17% in June. That’s not what you’d see if we were heading into a recession, as the talking heads have been saying. Despite these big moves, discretionary stocks like GLBE and DKNG are only just now emerging from big bases.

As you would expect in a risk-on environment, defensive sectors have made fresh 52-week lows relative to the broad market:

Credit markets are giving us a confirming message. Junk bonds (HYG) made a clean breakout this week relative to treasury bonds of similar duration (IEI):