Morning Notes — Cyclical/Value Pause

Bond yields: Ten-year Treasury yields are currently trading at 1.68%, matching our expectation for a period of consolidation below the 3/19 intraday high of 1.74%.  A weaker-than-expected March payroll number could pressure 10-year yields as low as ~1.45%, which was old technical resistance and now new technical support.  That’s a fairly low probability outcome with 1.62%-1.64% acting as a more reasonable support level in the near-term.  Resistance on the upside is still 1.79% (50% retracement from the 2018 high), with a release through that level pushing yields into the 1.90s.

Sectors: The NASDAQ 100 (NDX) should test its February highs of 13,808 in the near-term, but we expect the index will struggle to move higher from there.  Our highest conviction long remains cyclical/value stocks, with the S&P 500 Value Index as a good proxy. In the near-term, we expect easy 15% upside to the 1615 range before we set our sights on potentially higher levels.  The broader S&P 500 should also trade higher, but its heavy growth weighting will likely hold it back in during Q2.  Look to add cyclical/value exposure during this pause.  Financials still look like the easiest of the value sectors with regional banks most attractive.