1. US Cyclicals Rotation in Rich Territory
2. USDJPY – Politics Pushed it Too Far
3. Systemic vs. Idio – Credit is the Biggest Tell
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1. US Cyclicals Rotation in Rich Territory
The Nasdaq 100 is testing its 50d MA and we have seen a sharp cyclical rotation out of Tech to other compartments of the market with markets betting on a Goldilocks backdrop into 2026 alongside greater discernment in the next phase of AI between the winners & losers.
However, we have just seen a weaker payrolls than expectations and the Fed dot plot is projecting only one cut next year (albeit two are priced). This does put into question the cyclical rally.
On Qi’s valuation model, XLK is only 0.7 sigma below its macro-warranted fair value – not yet a signal to expect outright relief for the sector.
However XLY (Consumer Discretionary) relative to SPY is at +2.3 sigma – close to 5yr highs.
XLK vs. XLY is at -1.7 sigma – at the lower end of its 5yr range. Since 2009, there have been 23 events at this level of dislocation. Two-thirds of the time XLK outperformed over the following 4 weeks. Below, note the tight correlation between the FVG and relative spot price performance – be cautious on the cyclical rotation.
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