July 23, 2021
Substantial declines in the Unemployment Rate are probably required before 10-year yields can inflect meaningfully higher…through resistance at ~1.45%. However, progress on the bipartisan infrastructure package and/or encouraging news on the Delta variant should create upside in yields. The key indicator for equity sector preferences comes down to the shape of the yield curve. A 5/30-year yield spread >120bps helps make the case for cyclical/value sector, primarily Financials, Materials and Industrials. The 5/30 spread sits at 121bps this morning, but more work is needed. The ‘barbell approach,’ is often used as a copout for analysts on timing, but appropriate for the time being. We continue to expect curve steepening, cyclical/value leadership and possibly more dangerous rotation out of growth later this year.