Consumer goods are the most sensitive to the market cycle, and at the moment they give no indication that the cycle is about to turn, according to one of Wall Street’s most followed technical analysts.
“Discretionary names historically deteriorate before the cycle ends,” Jeff deGraaf, founder and president of Renaissance Macro Research, said in a note on Wednesday. “That makes them excellent contrarian proxies for the market cycle. With discretionary names at new relative highs, it suggests the market cycle is still in the middle, even early, but not the late innings suggesting inflation and growth, ”
To illustrate this point, he pointed to the charts below, which track the direct and relative performance of the Russell 3000 consumer discretionary equality sector.
Renaissance Macro Research
Stocks saw a mixed performance with the Dow Jones Industrial Average DJIA on Wednesday,
90 points or 0.3%, while the S&P 500 SPX,
fell 0.3% and the tech-heavy Nasdaq Composite COMP,
decreased 1.1%. Shares faltered last week as fears of an inflationary rise triggered a jump in bond yields. But if discretionary stocks are a guide, there is little evidence of price pressure so far.
“We could be wrong, but discretionary names are likely to weaken as we see ongoing inflationary pressures build and the costs of consumer borrowing and energy eroding their purchasing power (that’s not happening yet),” deGraaf wrote.