“In baseball and softball, the curveball is a type of pitch thrown with a characteristic grip and hand movement that imparts forward spin to the ball, causing it to dive as it approaches the batter.”
We are halfway through June and halfway through 2025, the first 6 months of the year have thrown a number of curveballs, and a trend that shows no signs of slowing down either.
And to have any chance of hitting a home run, traders have had to adjust they way they play the game I wrote about how I have changed my strategy in the recent article Why the Market Feels Off—and What I'm Watching Now
Changing dynamics
The changing dynamics of the market create opportunities for traders as long as enough participants remain confident in their ability to exploit those opportunities.
That means having sufficient liquidity to enter and exit a trade freely, and that they have enough visibility to be able to make an educated guess as to the likely outcomes of any trade.
For now at least those conditions are holding, despite the escalation in the Middle East.
Somethings don’t change
Some things don’t change however, and one of these is that when the shooting starts, anywhere near the Straits of Hormuz, the price of oil rises sharply.
Brent crude has added +11.34% over the last week, as Israel and Iran trade blows. Rising crude oil prices mean that oil and gas stocks are back in focus again.
We can see from the chart below of our old friend the S&P 500 Energy sector 20 D MA Percentage indicator.
Which tracks the percentage of stocks with the sector, that are trading above their respective 20-day moving averages.
Source: Barchart.com
As recently as June 5th the indicator touched a low of 21.73%, the next day it rallied by +166.72% and continued to climb to close at 91.30% on Friday the 13th of June.
High, Low, Open, Close data for the S&P 500 Energy sector 20 D MA Percentage indicator
Source: Barchart.com
Underperformance
The average stock in the S&P 500 Energy sector has underperformed the S&P 500 as a whole by just under -48.00% year-to-date, rallying by just +0.10% compared to a +3.45% gain in the broader index.
If the situation in the Middle East gets worse with Iran perhaps striking at tankers in the Persian Gulf or at the oil producing assets of countries that host US military bases, then oil prices are likely to rise further.
Oil prices are very sensitive to marginal changes in supply delays to oil supplies are one thing, interruptions to supply are quite another.
It's not just individual US sectors that have thrown us curveballs; consider these tables from the Bank of America Flow Show report.
The first table ranks asset classes by their year to date returns in US $.
Source: BofA Flow Show Report
The second table ranks asset classes by proximity to their 200 Day Moving Averages.
In both cases the US equities are towards the bottom of each list whilst European stocks top the equities columns for both winners and percentages above the 200 D MA.
Source: BofA Flow Show Report
I think these kinds of tables and the data in them can be very useful as you can instantly get a feel for trends, and relative performance between assets just by looking at them.
Mean reversion
And if like me you believe in mean reversion, then they provide you with a list of indices and sectors to watch for an early heads up, that the moves back to average performance levels are happening.
For example, if you believe that US equities will move higher through the second half of 2025 you are going to need to see the ACWI Technology sector pick up from its mid to low table rankings above.
On the other hand if you feel that risk-off is likely to be the way of things into year end, or even just over the summer months.
Then you are probably going to be looking for “signs of weakness” in the performance of Spanish, Italian and German equities.
This chart below shows the performance of the S&P 500 index in black, versus the German Dax in orange,over 5 and 1-year periods.
Source: Barchart.com
Sustained outperformance by the Dax is relatively rare
That doesn't mean that it can’t continue of course. However the longer it does continue the more inclined I am to think that some sort of reset is likely.
Whether that’s by the Dax moving down or the S&P 500 moving up or a combination of the two.
Keep looking out for opportunity, and for areas of the market that look oversold or overbought. Or, which have deviated from long standing historic relationships.
Because I think it's here that the opportunities will lay during the summer and the run into the year end.
And given all the uncertainty we’ ve experienced in the first part of 2025, any kind of resolution in trade wars or shooting wars, could create significant catalysts for change in both trader sentiment and share prices.
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