The "Everything Else" Catch Up Trade Is Kicking In

On May 25, when spoos were trading smack in the middle of their two-month range around 4,115, we warned readers that Mutual Funds were starting to flood into MegaTech stocks as they start cutting record cash allocations (since then, spoos are up 300 points because once the tanker starts moving, it's almost impossible to stop it). Then, following the spike in the May unemployment rate reported on June 2, those same mutual funds started to also slowly reengage with cyclical stocks on the long side.

Well, according to Goldman's John Flood, yesterday and today this re-engagement was gaining momentum (in spite of, or perhaps due to the latest broken record warning by Marko Kolanovic who on Monday said that the "Bounce in Cyclical Stocks Won’t Last"), as the CPI print did not give buyers any reason to pause. Next, the fed will hold rates tomorrow (see preview here), and then we will all start talking about July (where the market is currently showing 60% probability of a hike).

Which cyclical sectors are most likely to benefit from this ongoing engagement? According to Flood, "most of the cyclicals conversations on our desk have been centered around fins (PNC Insurance, REITS, Alts, wealth names) and energy (offshore services, E&P, Majors)."