My friend Ari Wald, who does the chartistry for Oppenheimer, is out with a new note looking at the bullish backdrop of higher rates and stronger performance in the “reflation” sectors, like rails, airlines and financials.
Here’s Ari on the big picture along with a pair of relative charts:
Rising Rates Are a Bullish Tell, Transports Reaffirm Bull Cycle
We continue to make the case that interest rates are bottoming, reflationary sectors are positioned for a stronger second half, and market internals should strengthen as well. We view the latest backup in Treasury rates as additional evidence that economic growth is firming, and recent weakness in equities is buyable. Dow Transports have also reaffirmed the bull cycle, by our analysis. As far as pro-cyclical industries showing signs of inflecting positively, we see additional upside for both the Banks (KBE) and Transports (IYT).
Buy Banks (KBE) and Transports (IYT)
Our recommended market theme has been, and remains, Risk over Risk-Off. As far as pro-cyclical industries showing signs of inflecting positively in recent weeks, we see additional upside for both the Banks (KBE) and Transports (IYT). Relative to the S&P 500, KBE made its first higher high of the year and appears poised to see Q4’16 leadership resume, in our view. IYT is also breaking out relative to the market and likely to see gains accelerate over the coming months, by our analysis.
As always, you may click to embiggen:
Josh here – as this rally in the transports and financials has gotten underway, we’ve seen some of the air come out of the FAAMG trade, with pullbacks in everything from Microsoft to Google of between 4 and 10 percent. The open question of whether or not the market could hold up should the growth giants of tech falter has now been answered.
Oppenheimer – July 8th 2017