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BMO Equal Weight Oil & Gas ETF (ZEO.TO) 

Trading action across equity markets has been choppy this week as investors grapple with the implications of increased speculation that the easy money party of the last year could start to wind down, and what a potentially reopening economy over the next 6-9 months could mean for the relative outlook of varying sectors.

With vaccines rolling out and US economic prospects improving, the US 10-year treasury note yield pushed up above 1.50%, spooking some traders and sparking a round of profit taking in high growth, richly priced momentum sectors, such as technology and health care, leading to a sharp correction in the NASDAQ Composite which is dominated by those groups. Capital leaving those groups appears to be rotating into economically sensitive groups such as industrials and construction, and sectors which had been heavily impacted by COVID lockdowns but now have the potential to catch up such as energy, airlines, real estate, and others.

Some of the concerns about rising rates appears to have eased in the last 24 hours. The US 10-year treasury note yield has levelled off between 1.50% and 1.60% as the US monthly consumer price report indicated that inflation remains subdued, while the Bank of Canada indicated that even though recent economic conditions have been stronger than expected, there remains significant slack in the system and because of this, it intends to continue asset purchases at current levels for the foreseeable future.

News flow over the coming week is dominated by several more central bank meetings which investors may look to for insights into economic conditions and monetary policy trends. The European Central Bank meets today, followed by the US Federal Reserve Board next Wednesday and the Bank of England plus the Bank of Japan a week from today. Other economic announcements of note include Canadian employment on Friday and US retail sales on Tuesday.

In this issue of Equity Leaders Weekly, we look at energy and technology ETFs as indicators of changing relative strength and tactical capital rotation between sectors as leadership changes.

BMO Equal Weight Oil & Gas ETF (ZEO.TO) 

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