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 Sector Scopes June 2023 Update & CBOE SPX Volatility Index (VIX.I)

Summer has officially arrived this week and while temperatures have been rising in much of North America, the enthusiasm for equities has cooled somewhat. In particular, a correction has started in Asia Pacific markets and China-sensitive commodities such as Copper.

US indices have paused their advance and have started to backslide slightly since returning from a long weekend. Sector rotation appears to be underway with investors taking profits out of Technology and Communications, the groups that had led the way higher for much of this year, and rotating capital into Industrials and Energy.

The hawkish tone from the Fed that started at last week’s meeting continued yesterday with testimony from Fed Chair Powell who suggested yesterday that the fight against inflation “has a long way to go”. This afternoon, after US exchanges close, stress test results for major US banks are due which could potentially put an end of the fears about the US banking system that started back in March, or could flare fears up again.

Today is the last day of central bank meetings before the summer holiday season with the Bank of England and the Swiss National Bank both expected to keep the parade of rising benchmark rates and inflation fighting going. Friday brings Flash PMI reports, the first peek at June economic conditions around the world.

Next week is the last week of the month, the quarter and the first half of the year. It starts off very quietly for business news, with a focus on North American housing numbers. Later in the week a few of the usual month end data starts to come out like US PCE inflation, GDP and the early PMI reports from Chicago and China.

In this edition of Equity Leaders Weekly, we look at the VIX and Sector Scopes for insights into the current state of investor confidence and the relative strength of equity market sectors.

Sector Scopes June 2023 Update

The Sector Scopes feature in SIA Charts, found in the Markets – BPI section, provides investors with a visual snapshot of the Bullish Percent (percentage of stocks in the sector on a bullish signal) for 31 industry groups. This provides insight into which sectors are attracting capital, and which are not at a given point in time and also how capital flows and investor sentiment change over time.

A month ago, the groups were evenly spread across columns between the center left and the center right, which was indicative of a neutral, balanced market. Over the last month, the groups have shifted rightward so that the majority are in the center-right columns, This indicates that the Bullish Percent for many groups has increased significantly, an indication of a bull market gaining traction. The groups are not piled up in the rightmost columns indicating that while the market trend has become more bullish it has not become overbought as of yet.Groups on the right-hand side with the highest Bullish Percent and the strongest Relative Strength at the moment come from a wide variety of cyclical industries including Construction, Automotive, Manufacturing, and Diversified Services. Several technology/communications groups are also relatively strong including Electronics & Semiconductors, Computer Hardware and Software, and Internet. Financials also appear to be on the comeback trail with Banks and Financial Services moving rightward.

On the other hand, groups exhibiting relative weakness on the left-hand side include staples/defensives like Drugs and Tobacco (which is common in a bull market or an economic expansion), along with Metals and Mining.

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