Stocks vs. bonds? In this video, Julius breaks down the asset allocation outlook and why defensive sectors, large-cap value, and bonds may continue to outperform in this volatile market. He starts at the asset allocation level using Relative Rotation Graphs (RRGs) to analyze stocks vs bonds performance, then highlights the ongoing defensive sector rotation, and identifies strength in large-cap value stocks.

To close out the show, Julius dives into stock-specific opportunities based on the relative rotation of sector constituents, pointing to potential leadership shifts as market volatility rises.

This video was originally published on April 17, 2025. Click on the icon above to view on our dedicated page for Julius.

Past videos from Julius can be found here.

#StayAlert, -Julius

In this video, Grayson unveils StockCharts’ new Market Summary ChartPack—an incredibly valuable new ChartPack packed full of pre-built charts covering breadth, sentiment, volatility data and MUCH MORE!

From there, Grayson then breaks down what he’s seeing on the current Market Summary dashboard, illustrating how he’s putting this invaluable tool to work in the current climate. He highlights weakness in Small Cap stocks, uses the Factors Map to pinpoint the groups that investors are gravitating to, and explains why the sea of red across the breadth maps continues to be a clear indication of the weakness in this market.

This video originally premiered on April 18, 2024. Click on the above image to watch on our dedicated Grayson Roze page on StockCharts TV.

You can view previously recorded videos from Grayson at this link.

It was another erratic week in the stock market. There were several market-moving events sprinkled throughout this short trading week, including earnings, escalation of tariff wars, and Chairman Jerome Powell’s remarks at the Economic Club of Chicago. This extended to wild swings in the bond market as well.

We had several positive earnings from banks and Netflix, Inc. (NFLX). Others, such as UnitedHealth Group, Inc. (UNH), disappointed, sending the Dow Jones Industrial Average ($INDU) lower by 1.33%.

Chairman Powell stated that tariffs could increase inflation. This would cause economic growth to slow down and unemployment to increase. The hope is that inflation is transitory, and, after it becomes stable, the Fed can continue to focus on its dual mandate of maximum employment and price stability.

It’s an insecure time for investors, and many feel the pain. You’re probably wondering how long this pain will go on for. In an uncertain environment, the best you can do is turn to the bond market.

It’s All About Bonds

The recent wild swinging market activity can be encapsulated in the price action of Treasury yields. Since 2024, yields have been swinging up and down. In the past year, the 10-year Treasury yield has ranged from 3.60% to 4.81%, and when the range is this wide, it’s an indication of economic instability. Not to mention, economic instability could result in a weaker economy.

The daily chart of the 10-Year US Treasury Yield Index ($TNX) gives you an idea of the range of yields in the last year. More recently, the yield has risen from 3.89% to 4.59%, and has now pulled back to its 50-day simple moving average (SMA).

FIGURE 1. DAILY CHART OF 10-YEAR TREASURY YIELDS. Yields have been seeing some large up and down swings.Chart source: StockCharts.com. For educational purposes.

Generally, when stock prices fall, bond prices rise. Since bond yields move inversely to bond prices, you’d expect yields to fall. This scenario isn’t playing out. Instead, we’re seeing yields move erratically while bond prices remain suppressed. There needs to be stability in bond yields before a stock market recovery, and one way to do that is to monitor the chart of the Merrill Lynch Option Volatility Estimate, referred to as the MOVE Index ($MOVE).

The MOVE Index tracks bond volatility. Think of it as the bond counterpart to the Cboe Volatility Index ($VIX). The chart below displays the $MOVE/$VIX relationship, with the correlation between the two in the lower panel.

FIGURE 2. THE MOVE INDEX VS. VIX. A high correlation between the MOVE Index and VIX suggests interest rates and stock prices are tightly connected. A lower correlation would indicate stability in equities.Chart source: StockCharts.com. For educational purposes.

The two have been highly correlated since the end of March, which indicates that stocks and interest rates are tightly connected. This means the wild up and down swings in equities could continue. When the two are less correlated, we can expect equities to start settling down. Looking at the above chart, a correlation of 0.80 would be sufficient for signs of stability.

Both $VIX and $MOVE have come back slightly, but their correlation is at 0.93, which is relatively high.

Be sure to save both charts displayed in this article to your ChartLists. They could alert you to stability in the stock market ahead of other indicators.

The Bottom Line

Until stability returns, you could do the following:

• Stay on the sidelines and keep some dry powder.
• Invest in risk-off instruments such as gold and silver.
• Park some of your money in defensive sectors.

Equities could slide lower before stability returns. If this happens, you could pick up some growth stocks for a bargain.

An empowered investor comes out ahead after market instability. So monitor the market closely and, when the time is right, make wise investment decisions.

End-of-Week Wrap-Up

• S&P 500 down 1.50% on the week, at 5282.70, Dow Jones Industrial Average down 2.66% on the week at 39,142.23; Nasdaq Composite down 2.62% on the week at 16,286.45.
• $VIX down 21.06% on the week, closing at 29.65.
• Best performing sector for the week: Energy
• Worst performing sector for the week: Consumer Discretionary
• Top 5 Large Cap SCTR stocks: Palantir Technologies, Inc. (PLTR); Elbit Systems, Ltd. (ESLT); Anglogold Ashanti Ltd. (AU); Just Eat Takeaway.com (JTKWY); Kinross Gold Corp. (KGC)

On the Radar Next Week

• Earnings season continues with Haliburton (HAL), Tesla (TSLA), Boeing Co. (BA), International Business Machines (IBM) and others reporting.
• 30-Year Mortgage Rates
• March New Home Sales and Building Permits
• April S&P PMI
• April Consumer Sentiment
• Fed speeches from Jefferson, Harker, Kashkari, and others.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your personal and financial situation, or without consulting a financial professional.

Reflecting on the price action over this shortened holiday week, I’m struck by how the leadership trends have not really changed too much. We’ve observed bombed-out market breadth indicators, and the S&P 500 remains clearly below its 200-day moving average despite a strong upside swing off the early April market low.

But how much as the leadership of this market changed over the last couple weeks? I would argue that conditions remain fairly consistent over that period, and are still not overwhelmingly bullish.

Defensive Sectors Still Outperforming Offense

Here’s one of my favorite charts for analyzing offense vs. defense, a chart that holds a place of honor on my Market Misbehavior LIVE ChartList. We’re comparing the Consumer Discretionary and Consumer Staples using both cap-weighted and equal-weighted ETFs.

When the ratios are going higher, investors are favoring “things you want” over “things you need”, which implies optimism for economic growth. When the ratios slope lower, that suggests more defensive positioning as investors are skeptical of growth prospects.

We can see that the cap-weighted version of this ratio made a peak in January, while the equal-weighted version made its own top in February. Both ratios have been in a fairly consistent downtrend of lower highs and lower lows, even through last week’s sudden spike on tariff policy changes.

How bullish do I want to be when these ratios are sloping lower? Generally speaking, I’ve found that until investors start believing in the upside potential of Consumer Discretionary over the relative defense of Consumer Staples, it’s best to remain on the sidelines.

Using the RRG to Visualize Offense vs. Defense

While I often refer to relative strength ratios of sector ETFs vs. the S&P 500 index, I also enjoy leveraging the power of Relative Rotation Graphs (RRG®) to monitor a series of relative strength ratios in one simple but powerful visualization.

Here, I’m showing the 11 S&P 500 economic sectors relative to the S&P 500, and I’m highlighting Consumer Discretionary and Consumer Staples to monitor their relative positions. If you click “Animate” for this visualization, you’ll see that toward the end of 2024, offense was clearly outperforming defense. The XLY was in the Leading quadrant, the XLP was in the Lagging quadrant, and the rotations suggested a classic bull market configuration.

Fast-forward to February and March and you’ll see how Consumer Discretionary rotated into the Weakening and then Lagging quadrant. Meanwhile, Consumer Staples strengthened during that same period. At this point, the RRG is telling me defense over offense, in a classic bearish configuration.

Sticking With Groceries, Guns, and Gold

So, given the bearish leadership configuration in spite of a sudden bounce of the April market low, where can we find potential opportunities? I’ll highlight three ideas that I’ll summarize as “Groceries, Guns, and Gold.”

Playing off the “things you need” theme implied above, grocery retailer Kroger Co. (KR) has managed to pound out a fairly consistent pattern of higher highs and higher lows. With improving momentum and a new 12-month relative high this week, this is a chart continuing in a clear uptrend despite broad market weakness.  By the way, KR was one of the Top Ten Charts for April 2025 I presented with Grayson Roze!

Defense stocks like Northrop Grumman Corp. (NOC) have experienced an upside resurgence given geopolitical instability in 2025. From a technical perspective, I love how charts like NOC have rallied since mid-February, while most stocks, as well as our equity benchmarks, have been trending lower! There’s a significant resistance level to overcome around $550, but a confirmed break higher could open the door to further gains.

Gold has experienced an incredible run so far in 2025, finishing the week up 26% for the year compared to the S&P 500’s 10% loss over the same period. Similar to the chart of NOC, Newmont Corporation (NEM) is addressing a key resistance level from a major high in October 2024. But, so far in 2025, NEM has been scoring higher highs and higher lows, potentially building momentum for a break to a new all-time high.

It can be super tempting to consider the April low as “the bottom” and go all-in on growth stocks and offensive plays. But, given the lack of leadership rotation in April, I’m inclined to stick with charts that remain in strong uptrends during uncertain times.

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.