The correlation among S&P 500 issues hit a 5-month low on Friday, reflective of a bifurcated market backdrop where stock selection is key. While there has been a notable pick-up in technology volatility over recent weeks, credit conditions remain benign with Baa spreads near recent lows.
We’re now into the calendar’s weaker stretch, and while a consolidation or pullback would not surprise us over coming weeks, we still do not see the conditions consistent with a major top formation.
Last week was also characterized with a leadership reversal (e.g., energy and retail rallying). Consumer Staples didn’t participate and stand at an important relative performance juncture vs. the broader market. By our work, trends in Staples are deteriorating and near-term strength should be sold.
Credit Conditions Remain Calm
Volatility Starting To Diverge
Seasonality Is A Near-Term Concern
Leadership Reversal Last Week