June 4, 2021
The reflex market reaction to the mild payroll disappointment has Treasury yields lower with growth equity sectors outperforming value. But with almost every other report signaling strong end-market demand, today’s reaction is unlikely to have much staying power. Even the Fed’s own Beige Book points to strong labor markets with supply constraints as the headwind to more significant payroll adds.
SPX/SVX: The recent consolidation in the S&P 500 (SPX) looks like a pause within an ongoing bull market. The S&P 500 Value Index (SVX) hasn’t shown the same price trend deceleration present in the SPX during the month-long consolidation and counter-trend pullback in bond yields. With the counter-trend pullback in yields now looking extended and mature, a release to higher yields will drive another leg of value sector outperformance. Yesterday, we pointed to strength in the Energy sector (XLE) with the group breaking through pattern resistance. The XLE is higher again today despite a short-term pro-growth narrative following the payroll disappointment….and the S&P 500 Value Index is also higher.