Sector Ratings Update and Model Portfolio Changes

Risk happens fast.

In last week’s Playbook, we noted Energy’s run of outperformance could be coming to an end. A bearish momentum divergence occurred on the weekly relative chart, but we wanted to see price confirm that divergence before downgrading the sector.

Now we have it.

Energy has failed to hold above its former relative highs, and now the near-term risk is to the downside. We’re lowering our rating on the sector to Equalweight.

In conjunction with the downgrade, we’re upgrading Consumer Staples to Overweight. With the market back in risk-off mode, the higher probability outcome is now a breakout from this consolidation for Staples.

We’re adjusting our model portfolio to reflect the updated ratings. These changes will be effective as of the close on December 6.

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