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Timing The Market With Sector Analysis - Week Ending July 15, 2016 - Rising Yields & Commodities Are Net Positive.

|Includes: XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, Consumer Discretionary Select Sector SPDR ETF (XLY)

Overview:

The risk-on behavior that began in the latter half of the previous week continued last week. All four of the economically-sensitive (aggressive) sectors finished positive (see first chart). On a relative basis the only aggressive sector with a negative weekly finish was Cyclicals, aka Consumer Discretionary (see second chart).

The Materials sector had an exceptional week, up 3.88%. Much of the strength in Materials came from industrial (base) metals. The strength in industrial metals over precious metals is encouraging as it may be a sign that inflation (growth) may be on the rise (see next chart).

The following chart is a breakout for last week of the three core industrial metals (Aluminum, Copper, Steel) versus their performance to Gold and Silver.

Insights:

The recent strength in industrial metals over precious metals is encouraging as it may be a sign that inflation (growth) may finally be on the rise. Another encouraging sign this week that global economic strength is on the mend was China reported Q2 GDP at 6.7% (above the 6.6% forecast) and industrial production (year-over-year) came in at 6.2% vs. the 5.9% forecast. China's July retail sales (year-over-year) was also upbeat, coming in at 10.6% versus the 9.9% forecast.

Another positive sign for sustaining the market uptrend is the rise in Treasury yields (see next chart). As money flows out of safe-haven Treasuries, their yields rise (and Treasury / bond prices decline). As money flows out of fixed-income assets it typically gets put back to work in equities.

Summary:

Economically-sensitive sectors continued their strength this last week. Industrial metals are starting to outpace precious metals. Rising commodity prices (i.e. demand) are potentially telegraphing a rise in inflation. Rising inflation is a sign of growth. Rising Treasury yields are indicating that money is flowing out of fixed-income and into equities (hence the recent market rally). This all bodes well for a continuation of the bull market, at least into the early fall before the Presidential elections.

Previous Instablogs:

Timing The Market With Sector Analysis - Week Ending July 8, 2016 - Aggressive Sectors Showing Strength