Image Source: Unsplash

It’s a holiday week for markets, with exchanges closing at 1PM Eastern on Wednesday, and closing completely on Thursday for Independence Day in the United States. But nonetheless, the market remains on the move.

Be sure to take some time away from the screen this week. Admittedly, I have a problem with it too, but since I’m hosting the party this year, I’ll have help from friends and family to unwind for a bit. In the meantime, I noticed a potential shift in sector leadership last week, and if it continues, it will be very important for your portfolio. Have a look… 

This Leading Sector Is Surprising

Have a look at the new one-week leading sector in the S&P 500 - it’s energy. This may be surprising to some considering last Friday’s relatively muted inflation report.

Remember that the market is forward-looking, and economic data is backward-looking. Despite the muted inflation report, bond markets sold off hard (interest rates rose). Do bonds know something the public doesn’t?

Rising rates are inflationary. This is an evolving situation that must be monitored carefully. That is, rising rates and energy outperformance are not the most appetizing recipe for higher stock prices.

I’m still bullish on stocks near-term, and as I’ve explained before, tops take time. But we continue to see mounting evidence that this equities rally is maturing, and a broader pullback may be exactly what we need for the Fed to eventually ease. The good news is that tech continues to lead outside of the 1-week leadership position. If this starts changing, it would signal that the time has come to start dialing back risk within the portfolio notably.

Rest assured I’ll be keeping you posted...

More By This Author: