New Highs In Yields

“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” – Warren Buffett

Futures are modestly higher for the S&P 500 and Dow this morning, but the Nasdaq is indicated to open lower in what’s looking like a mixed session for stocks.  Futures started to lose some steam shortly after the European open as Treasury yields have been moving higher with the 10-year eclipsing 1.95% to its highest level since summer 2019.

The latest read on small business sentiment dropped to an 11-month low, but 61% of companies surveyed reported that they have raised prices, so inflation pressures remain firm.  On a brighter note, WTI is trading back below $90 after hitting multi-year highs late last week.

We’re barely a month into the new year, but 2022 is shaping up to be a year where it’s Energy and everyone else.  Year to date, the sector is up over 25%, and besides Financials, which is up less than 3%, every other sector is staring at losses.  The chart below shows the performance of the ProShares S&P 500 Ex Energy ETF (SPXE) compared to the performance of the S&P 500 Energy sector ETF over the last year.  For much of the last twelve months, Energy has outperformed the S&P 500 Ex Energy, but as the calendar flipped to 2022, the divergence has widened out to extreme levels.  Even as Energy has risen more than 25% this year, the rest of the S&P 500 is down close to 7% on a market-cap-weighted basis, and that has stretched the one year performance gap between the two ETFs over the last year to 50 percentage points (63.96% vs 13.95%).