Morning Notes — Curve Steepening

We’ve had a pro-cyclical/value bias since mid-September.  At the time, financial conditions remained extremely favorable, Tech multiples had stopped expanding and bond yields were lifting off a six-month base.  We gained more conviction after the 11/9 PFE/BNTX data steepened the Treasury yield curve and pushed the S&P 500 Value Index (SVX) through long-standing technical resistance.  The spread between the 5-year and 30-year Treasury yield is a good proxy for the shape of the curve.  Over the past several months, we’ve noticed strong relative outperformance for cycle/value stocks when this spread widens beyond 130bps.  The spread pushed to 131.1bps today and we stay short-term bullishly biased to Industrials, Financials and Materials above 130bps.  If the spread widens beyond 140bps (long-term technical resistance), we’d narrow the preference down to just Financials, specifically banks.