February 11, 2020
Today is the first day the S&P 500 has been led by cyclically-sensitive sectors since the coronavirus-led pullback occurred on 1/24. Over the past few days, we stressed the unsustainability of new highs in the SPX based on defensive sector leadership. The last time this occurred was during the three weeks preceding the July 26, 2019 record high. Cyclical strength today is worth noting. The German DAX is a good cyclical proxy and it just barely made a new high today. Before adding broad equity exposure, we’d like to see the DAX extend gains along with confirming highs from at least one other cyclical proxy (SOX, NKY, SXAP easiest to track). And we don’t expect a material break to new highs until cyclically sensitive groups regain their leadership role over defensive sectors.