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Look to Lagging Cyclicals; UBER Ideally Positioned Technically

Last week I made the case that despite accelerating worries regarding the election, COVID-19, stimulus and the overall economy, a rebound was likely early this past week. Daily momentum was oversold and poised to bottom, the VIX was already showing evidence of peaking at advanced levels, US 10-year yields were firming, and cyclicals were broadly emerging. With election anxiety dissipating this week, equity markets held and rallied from key support at the September lows and the VIX has dropped sharply. I continue to expect the VIX to follow the post-election patterns that developed in 2012 and 2016 which should signal more upside for equities well into 2021.

While I was reassured by the equity market’s positive response to technical setup I saw developing late last week, I also had a number of clients question my view on the drop in bond yields and snap rotation back to growth stocks away from cyclical stocks. To be clear, I am not negative on growth stocks, but I had definitely not expected the 10-year bond yield to fall so precipitously on Wednesday, nor had I expected the sharp sell-off in cyclicals. Has my view changed? Absolutely not. In fact, this past week’s market behavior only reinforced my bullish technical outlook for equities into and through 2021 and I continue to see cyclicals as an area of opportunity.

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