The markets have continued to do very well, moving above their 200 day moving average for the first time in eighteen months. Yesterday’s ISM index continued to improve in April as it had in March. While it is not yet signaling an expanding economy, it is getting closer. Several commodities are also setting new shorter term highs on the sense that worldwide economies are beginning to recover.
Interest rates on long term government bonds have backed up considerably from their depression fear lows to about 3.7% in recent days. In almost every recovery on record, a back up in bond yields has occurred as a reflection of recovering confidence and a renewed appetite to take on riskier asset classes. As we’ve said before, a little inflation would be a good thing for the economy and a nice reprieve from the fears of deflation felt a few short months ago. The back up in yields does not concern us.
Late stage cyclical stocks, particularly energy, materials and industrials, continue to lead the markets higher. Eventually, the recovery will spread its wings further and laggards like health care and consumer staples should participate. But for now, the wind is clearly in the sails of the cyclical camp and we are positioned accordingly.
You can read some additional thoughts we shared with CNN Money last week here. 
