Beginners Series Webinar: Join us on Friday, May 23rd at 2 PM (ET) for our NDW Beginners Series Webinar. The week's topic is: Dynamic Asset Level Investing (DALI) and DALI Strategies. Register Here

Consumer Staples saw a rapid ascent in relative strength during the peak of the market’s tariff fears, with the flight to safety pushing them up to 6th place in DALI’s sector ranks. However, the group has shown deterioration as tariff concerns have slowly subsided, with the group falling back to DALI’s 7th rank after losing 21 signals so far in May. The group is within 2 signals of being overtaken by Basic Materials, at which point it would fall into firmer underweight territory. 

Within Asset Class Group Scores, the decline of Consumer Staples has been even sharper. Consumer Staples held an average score of 3.61—third best of the 11 major sectors—at its peak in April. The sector has since fallen nearly a full point to a score of 2.62—fourth worst of the eleven major sectors. The decline of staples is even starker when comparing it to its discretionary counterpart. Staples is back to ranking nearly a full point lower than the Discretionary Sector after moving ahead in February, serving as another sign of relative strength leadership returning to risk-on areas. 

The outperformance of the Consumer Discretionary sector over Consumer Staples in the last month has been quite notable. In fact, Consumer Discretionary Select Sector SPDR Fund (XLY) has bested the Consumer Staples Select Sector SPDR Fund (XLP) by 16.6% over the last month. There have only been 10 other clusters in which XLY sector has outperformed XLP by over 15% in a month, with the last time coming in June of 2023. Looking at those previous instances, returns over the next three months indicate the potential for a consolidating market in the near-term. However, the one-year returns are strong for both sectors, with each averaging a return north of 10% in addition to an 80% positive rate. One-year returns favor XLY, as it has outperformed XLP each of the last eight instances, but the first two occasions did see large outperformances from Staples. 

Broadly speaking, Staples has lost enough strength for it to no longer be a sector of focus. However, there are select companies within it offering high relative strength profiles. Our NDW Buy List offers high attribute names within each sector, and two strong names within Staples are Rollins, Inc (ROL) and Altria Group (MO). ROL is on its second consecutive buy signal after breaking a triple top at $57 at the end of April, marking an all-time high. The 5 for 5’er moved to a market RS buy signal last month and has been in a positive trend since 2003. Meanwhile, MO broke a double top at $60 earlier this month to reach a multi-year high. The 4 for 5’er moved to a peer RS buy signal in March and ranks in the top decile of its sector matrix. For income investors, note that MO is accompanied by an impressive yield of 6.81%. To see other names within our buy list, click HERE. 

Memorial Day weekend is upon us, and as in summers past, you will undoubtedly be frequenting several backyard BBQs, both this weekend and in the coming months. If your experiences have been anything like ours, you may have found that these parties can give some very helpful insight on investor sentiment. We have discussed the idea of the "Cocktail Party Bullish Percent” indicator in the past, as a way to gauge the general sentiment of your clients and the public about the market. So, in honor of Memorial Day, we wanted to present you with the cousin of the "Cocktail Party Bullish Percent," the "Backyard BBQ Bullish Percent" indicator. Keep it in the back of your mind as you head to any Memorial Day celebrations this weekend. Our prediction is that you will find yourself somewhere in the middle for most interactions.

Friends, family, and potential clients you see this weekend will also undoubtedly be curious about your take on the market, so we’ve included some notable recent developments below.

• US equities sit at the top of the DALI asset class rankings after recently overtaking commodities.
• Long-term US Treasury yields are sitting near multi-year highs as the 30-year yield index (TNX) crossed above 5% on Wednesday.
• Volatility has fallen significantly over the last month, but the S&P 500 Volatility Index (VIX) gave a second consecutive buy signal and crossed above 20 on Wednesday.
• While international equities rank third in the DALI asset class rankings, they continue to show signs of strength. The iShares MSCI EAFE ETF (EFA) and the iShares MSCI Emerging Markets ETF (EEM) both lead the S&P 500 by double digits year-to-date.
• While we often associate summer with higher oil prices, currently crude oil (CL) is trading in the low $60s after hitting a multi-year low at $56 last month.
• Expectations for a rate cut have shifted significantly. A month ago, the fed futures were pricing in about a 70% chance of a 25 basis point reduction in June. Now, the market is not pricing in a cut until September.

The US Treasury 10-year Yield Index (TNX) climbed 11 basis points on Wednesday, a relatively large one-day move, returning to a buy signal when it broke a double top at 4.6%. Meanwhile, further out on the yield curve, the 30-year yield index (TYX) was up a little more than 12 bps and reached a new 2025 high when it hit 5.05%, which puts it roughly 10 basis points below the high it reached in 2023. The spike in yields followed weak demand in yesterday’s 20-year bond auction.

TYX and TNX are both now at or near levels that have proven to be strong resistance over the last couple of years, so it is possible we could see consolidation or a move lower from here. However, both indices' charts currently show long-term yields trending higher and, as we discussed in yesterday’s Point & Figure Pulse, long-term bonds have a weak technical picture.

Since 2023, when the Fed finished its tightening cycle, there seems to have been a general belief that long-term yields should eventually come down. But, like the technical picture, the current economic/fundamental conditions are potentially troublesome for the bond market. As we discussed on Monday, Moody’s downgraded the US’s credit rating on concerns about the growing national debt. While credit rating doesn’t have the same importance for the US Government that it does for other issuers – entities that are restricted to owning only AAA debt will still be able to hold US Treasuries and therefore the downgrade won’t cause an implicit drop in demand – the net effect of a lower credit rating is unlikely to be lower yields.

More important than credit rating is the cause of the downgrade – the national debt – which has been a concern for some time now. On Thursday, the House of Representatives passed a tax and spending bill which the Congressional Budget Office has estimate will add an additional $3.8 trillion to the debt over the next 10 years, which is likely to exacerbate those worries, potentially putting upward pressure on yields. The concern isn’t that the US will default on its debt, the government’s ability to tax and print money makes that a highly unlikely outcome. But imagine if the government created trillions of dollars to pay off its debt, those dollars would be worth less than when the debt was issued. This is an incredibly oversimplified scenario to be sure, but you can see why the growing national debt could push yields higher even if there aren’t serious concerns about a default.

Meanwhile, recent comments from FOMC members have indicated that they are in no hurry to lower the Fed funds rate. A month ago, the fed futures market was pricing in about a 68% chance that the Fed would lower rates by 25 bps at its June meeting. Those odds now stand at around 5% and the market isn’t pricing a better than 50% chance of a cut until September. While the Fed doesn’t directly control long-term rates, which is what bondholders are usually most concerned about, the short-term rates the Fed does control (and perhaps more importantly expectations about where they are headed) do have an indirect impact further out on the curve.

As with everything in this business, there are no guarantees. We can’t know for certain which way interest rates are headed, but what we can say is that from both economic/fundamental and technical perspectives there are reasons to steer clear of long duration bonds. It is also worth noting that, over the last few years, when the 10-year yield index has gotten above 4.5%, it has often been accompanied by weakness in US equities.

Daily Option Ideas for May 22, 2025