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“Know what you own and know why you own it.” – Peter Lynch
Futures continue to rebound off Thursday’s lows as they look to erase most of yesterday’s losses at the open. Based on where they stand now, all of the major averages are set to finish the shortened week modestly in the red and bucking the positive seasonal trend in the process. Small caps are leading the charge this morning with Russell 2000 futures trading up by just over 1%. A positive showing today would snap what has been a four-day streak of 0.90%+ declines. The last time the Russell 2000 experienced a streak that long was in late February 2020 during the COVID crash. Granted, the magnitude of the losses was much larger back then, but it just helps to put the recent negative sentiment towards small caps into perspective.
10-Year US Treasuries are also trading lower this morning and that sets the stage for an end to the eight-day streak of falling 10-year yields. As we noted in the Closer report last night, over the last 20 years, there have been a number of streaks as long as the current one, but none have been longer.
On the regulatory front, the Biden administration just confirmed a number of executive orders aimed at competition in the agricultural, banking, health care, rail, technology, and transportation sectors, but futures are actually higher now than they were leading up to the releases.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, a discussion of economic data and policy actions in China, the latest US and international COVID trends including our vaccination trackers, and much more.
As the Technology sector has outperformed in recent weeks and US Treasury yields have declined, it almost seems as though the cyclical trade has been written off for dead, but a look at sector performance on a YTD basis provides some good perspective. Even after the recent outperformance, the Technology sector is still underperforming the S&P 500 on a YTD basis (14.8% vs 15.0%). At the same time, most of the cyclical sectors that surged in late 2020 and earlier this year are still handily outperforming the S&P 500 this year. The YTD gain in the Energy sector still dwarfs the S&P 500 and every other sector. Likewise, Financials still have a six percentage point lead on the Technology sector. Pullbacks in the Industrials and Materials sectors have moved them into the laggard camp on a YTD basis, but their gains are still solid. Like the period of consolidation that the technology/growth areas of the market experienced from September through earlier this year, one could just as easily take the view that these sectors are simply consolidating their monster gains of the prior months.