Vermilion Macro Vision: Sector Synopsis
STRATEGYWe remain near-term bullish since our 4/22/25 Compass, and our intermediate-term outlook remains bullish as well (as of our 5/14/25 Compass). We will maintain our bullish view as long as market dynamics remain healthy and the S&P 500 (SPX) is above 5500. Our base case expectation is that SPX tests all-time highs soon, then we expect it to hold above short-term gap support at 5700-5785 should we get a pullback.
Perhaps one of the most encouraging signs yet (and there have been many) is that the small-cap Russell 2000 (IWM) broke above the crucial long-term $209-$210 level on Friday last week. It is far too early to declare small-caps as leadership, but the significance of this break above $210 on IWM cannot be overstated; as long as the IWM is above $209, it is an extremely bullish signal for the broad equity market.
Aside from the bullish price trend on the S&P 500 and Russell 2000, additional market dynamics which support our bullish outlook include: (1) High yield spreads are well-below the important 355bps level. (2) Defensive Sectors including Consumer Staples (XLP), Utilities (XLU), Health Care (XLV), and Real Estate (XLRE) are at 3+ month RS lows. (3) Speculative growth areas that we have been bullish on remain leadership (quantum computing, robotics, A.I., drones, autonomous driving, eVTOL, space, nuclear power, crypto, etc.). (4) The 10-year Treasury yield has not been able to break above 4.50%, let alone the major 4.70%-4.80% resistance level. (5) Interest rate volatility (MOVE index) has fallen to the low-end of its 3-year range. (6) Breadth metrics remain healthy, with the S&P 500's advance/decline (A/D) line hitting YTD highs in May. (7) The U.S. dollar (DXY) remains weak, which appears to be back to being a risk-on signal for global equities. (8) The MSCI ACWI (ACWI), ACWI ex-US (ACWX), and EAFE (EFA) are breaking to multi-year or all-time highs. These are all risk-signals that support our bullish outlook.
We are making two Sector weighting changes: (1) We are upgrading Technology (XLK) to overweight with RS breaking above 9.5-month horizontal resistance – add exposure. (2) We are downgrading Financials (XLF) to market weight with RS violating the 9.5-month uptrend – reduce exposure.
On the following pages we detail the basis for our bullish outlook.
Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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