Expect Regional Banks and Biotechnology will also benefit as Small caps rally

US Equity indices are starting to move higher in tandem, with $SPX, $RSP, $DJIA and also $QQQ all showing gains of roughly +0.45%.  Small caps, however, have begun to lead the charge after last week’s breakout, and both Regional Banks along with Biotechnology should be beneficiaries of a Small cap rally.   The Yield curve has begun to steepen on an increased likelihood of a Trump presidency, and US Dollar along with 2-year yields look to move steadily lower in the weeks ahead.  While there could be a minor shift to Value over Growth as Energy and Financials continue the recent strength, I feel this proves short-lived before Growth reasserts its strength.   Overall, it’s still right to favor risk assets given that the Equal-weighted S&P 500 showed its hand last week and a more broad-based rally has been getting underway.  While some consolidation might occur after July expiration, I don’t feel it should prove too long lasting, nor severe before pushing up into late August.  SPX likely can reach 5800 without many issues, and it remains difficult to bet on any serious mean reversion in Technology without more proof.

As discussed late last week, the mean reversion higher in the broader market looks to be underway.  This started initially with Consumer Discretionary and Financials strength but has begun to spread to Industrials, Materials and parts of Healthcare. 

As charts will show later in this report, Small and mid-caps have begun to outperform and this has been a positive influence on Regional Banks and Biotechnology.

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