Cyclicals vs Defensives Had the Worst Week of the Year
All good things come to an end
Cyclicals have materially outperformed with blended industrials and materials having their best start in 20+ years. That changed last week. Cyclicals vs. Defensives were -3.4%, the worst week of the year.
GS trading desk: "A miss on ISM could cause pain for the cyclicals/industrials complex that has been heavily bought by the HF + LO community YTD. Given positioning, a cyclicals lower / secular winners & index higher move likely the biggest pain trade for the HF community."
Source: Bloomberg
All cyclical sectors sold
All US cyclical sectors, Energy/Materials/Industrials/Financials/Real Estate – were net sold last week and collectively saw the largest net selling since Liberation Day (-1.9 SDs 5-year), driven by long-and-short sales. US Cyclicals long/short ratio now stands at 1.79 (vs. YTD high of 1.89 seen in late January), in the 54th/45th percentiles vs. the past year/five years.
Source: GS Prime
Very high
US Capital Goods are trading on a very high multiple against the market.
Source: UBS
Asset heavy
Maybe the massive reversal in asset-light vs. asset-heavy stocks have gone a little too far.
Source: Goldman
Now at a premium
Asset-heavy stocks now trade at a P/E premium to asset-light stocks.
Source: Goldman
Some expensive - some cheap
Historical valuation of cyclical industry groups.
Source: FactSet
Industrial sub-sector valuation
Some of the industrial subsectors are outright expensive.
Source: FactSet
But the sector has the economic MoMo working for it
Capex pick-up
Philly Fed capital spending intentions would be consistent with a pick-up in capex.
Source: UBS
Improving
Industrial economic activity has improved in recent months.
Source: Goldman
Gaining strength
US soft data surprises converge on hard data surprises in positive territory: positive signal.
Source: Macrobond
Construction spending
"The US now spends basically as much on data center construction as on office construction."
