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.
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.
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.