Dig underneath the surface of a stock market trading near record highs, and you may not like what you find.
Below is a chart making the rounds on X right now showing how areas of the market sensitive to interest rates are badly underperforming.
You will see steep declines of late in sectors like Real Estate (XLRE), Utilities (XLU), and Industrials (XLI) as the 10-year Treasury yield (^TNX) continues to rip and traders prepare for one more interest rate hike from the Federal Reserve this year.
Investors have instead pretty much used the moment to pile back into tech leaders like Nvidia (NVDA), Apple (AAPL), and Microsoft (MSFT).
The downward moves in interest rate-sensitive sectors make a ton of sense.
For one, experts have told Yahoo Finance the housing market is frozen amid soaring mortgage rates. This is an earnings nightmare for homebuilders such as Toll Brothers (TOL) and Lennar (LEN).
Meanwhile, the last thing heavily indebted utilities and industrials need is a rising cost of capital.
To be sure, it continues to be a tech-dominated market and will remain so until the market begins to “care about anything else,” according to Thrasher Analytics founder Andrew Thrasher.
Read more: October may not be as bad for the stock market as investors think
The pullbacks may soon arrive in the broader market.
“The bulls remain steadfast that internal breadth is getting washed out, and poised for a massive upside reversion. This of course remains elusive given rates continue to press higher. The bears argue that breadth keeps getting worse, yields keep pushing higher, and credit spreads keep widening to the point that SPX can’t hold up much longer,” BTIG strategist Jonathan Krinsky explained.
He added, “We remain in the latter camp, but with the caveat that areas like Utilities are worth looking at for a tactical bounce. While the ongoing divergences have persisted longer than many, including us, would have thought, we continue to think this doesn’t end until we see the holdouts succumb by breaking lower.”
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Sozzi Unleashed morning show and the Power Players with Brian Sozzi podcast, and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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