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Trends & Analysis
News

Gold surges amid US-Iran deal prospects

News

Dow hits record closing high on US-Iran peace deal hopes

News

Nvidia’s stock dips despite Q1 beat, strong forecast

News

CAD falls versus USD following inflation data

News

Gold rises as Trump postpones Iran attack

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Crude oil surges amid stalled US-Iran peace talks

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Asset Watch

Could cyclical stocks shine with higher rates?

 

Thursday, May 25, 2023

Despite the bank-run debacle and the debt ceiling drama, the U.S. economy remains resilient. S&P Global revealed on May 23 that its U.S. Composite PMI hit a 13-month high. The report stated:
“S&P Global Flash U.S. PMI Composite Output Index registered 54.5 in May, up from 53.4 in April, to signal a solid and faster expansion in private sector business activity. The rise in output was the sharpest since April 2022, but led by service providers, who reported stronger demand conditions.”
JPMorgan CEO Jamie Dimon said on May 23, “I think everyone should be prepared for rates going higher from here,” noting that the U.S. federal funds rate could hit 6% or 7%.
However, the Dow Jones Industrial Average (DJI)/NASDAQ 100 (NDX) ratio ignored the ramifications, so could the tech trade eventually come under pressure?

The grey line below tracks the DJI/NDX ratio, and when it rises, the Dow is outperforming the NASDAQ 100. However, the sharp decline on the right side of the chart shows how Big Tech has gained the upper hand in 2023.

Since higher interest rates are typically bullish for cyclical stocks and bearish for technology, the black line shows how the ratio has largely followed the U.S. 10-Year Treasury yield since 2022. And with the latter rising while the former falls, a material divergence has emerged.

Should you buy the rates trade and rotate into cyclical stocks, or is Big Tech still the safest bet?


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