Inside Markets — Year-End Rally

The post-election cyclical rotation has stalled with the Russell 2000 (RTY)/Nasdaq 100 (NDX) performance ratio pulling back after signaling a potential break above this year’s base pattern near 0.116.  The ratio now stands at 0.110 and needs to extend beyond the November high of 0.117 before signaling that a more durable rotation is underway.  The ratio is an early technical indicator meant to precede a shift in macro fundamentals.  The fundamental backdrop for a sustained cyclical rotation usually requires substantial policy accommodation after an economic slowdown. That doesn’t seem to be in the cards at the moment.  It’s still possible to have a cyclical recovery after a soft landing but that scenario is likely waiting on some important catalysts that could possibly emerge in the ‘first 100 days.’  Tough initial tariff announcements followed by a strong China stimulus response seems like a logical chain of events that would kickstart a global cyclical recovery.