The market consensus is sometimes correct but sometimes wrong. I like to push against the consensus. Not only is it intellectually stimulating, but when the consensus is wrong investors can do well by using a contrarian approach.

Currently, for example, the central thesis of market skeptics is that numerous political risks—such as the ongoing U.S.-China trade spat, a looming hard Brexit later this year, and President Donald Trump’s regular shoot from the hip tweets—will undermine corporate and financial market’s confidence sufficiently enough to lead to a selfsustaining economic contraction. That’s otherwise more commonly known as a recession. This is a consensus view and as such, investors are defensively positioned.

Yet there’s some cognitive dissonance here: Why then are cyclical stocks—such as consumer discretionary and industrials—doing well this year and also leading in the rally from the June 3? (See nearby chart.) Secondly, why is the real estate sector second best?

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I believe that cyclical stocks are responding to, among other factors, the steepening long term yield curve and to rising inflation expectations.

Cyclicals are leading year to date, and do so despite the 7% correction in May. The interesting sector anomaly is real estate, whic...

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