Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Materials and energies outperformance may signal secular bull market

Materials and energies outperformance may signal secular bull market

The Covid-19 vaccine optimism risk-on trade has continued to be in the vogue for the second consecutive day, though at a slower pace. The Dow Jones Industrial Average and Russell 2000 advanced by 0.9% and 1.9% respectively, while the more mega tech-heavy weighted indices, S&P 500 and Nasdaq 100, declined by -0.1% and -1.7%.

S&P sectors intraday performance continued to be in favour for value/cyclical/defensive oriented stocks where energy (+2.5%), consumer staples (+2.0%) and industrials (+1.8%) took leadership positons while information technology (-1.9%) continued to underperform.

All in all, the reflation-themed play has been intact if we remove the 'noises' from last 2 weeks of political drama inherent from the US presidential election. In fact, the main catalyst that triggered the current bout of outperformance in value/cyclical-oriented stocks is the rate of change of the US Treasury 10-year yield, where its trend has been increasing steadily since 5 October.

Interestingly based on sector rotation analysis from a longer-time horizon perspective, outperformance of materials and energy (cyclical sensitive sectors) over the S&P 500 has tended to occur in the late stage of a long-term secular bullish phase in the stock market. For instance, the previous secular bull market peak of the S&P 500 occurred in October 2007, while materials and energy continued to outperform in the next 7 to 8 months and peaked later in May 2008 and June 2008 respectively.

The US dollar was almost unchanged against the majors as indicated by the US Dollar Index and a significant observation to note; it had tested and managed to bounce off from a long-term major ascending trendline in place since April 2011, with the low now acting as a support at 92.80 on Monday for the second time in three months since early September 2020.

In contrast, the USD/CNH (offshore yuan) continued to tread lower and ended yesterday’s US session at 6.5969, a low not seen since July 2018. In addition, the current bounce on Gold futures (COMEX) is still below a short-term resistance zone of 1,893/1,907 after Monday’s steep drop to retest its September 2020 swing low area of 1,850.

Asian stock indices are exhibiting mix performances, with Japan’s Nikkei 225 (+1.5%), South Korea’s KOSPI 200 (+1.2%) and Australia’s ASX 200 (+1.26%) posting solid gains, while underperformers are Hong Kong’s Hang Seng Technology Index (-3.6%), the Hang Seng Index (-0.07%), China’s CSI 300 (-0.3%) and Singapore’s Straits Times Index (-1.0%).

Chart of the day: EUR/USD major resistance at 1.1860

Source: CMC Markets

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.