Market Rotation Accelerates as Cyclicals Lead and Yield Curve Steepens

Welcome back to market movers.

The opening bell.

The markets, so-called invincibles are showing signs of vulnerability.

For months, the strategy was straightforward by the Max 7 and crypto.

What we are seeing a massive rotation while tech gold and Bitcoin are eyeing plenty of volatility and even down trends.

Cycical sectors like transportation, materials, and banks are breaking out to new highs.

The Dow transport index just shattered a four-year trading range, signaling a shift.

The bond market is flashing a major signal the US yield curve is at its steepest level since 2021 as two year yields stumble on weak labor data.

Well joining me here at the New York Stock Exchange this morning is Chris Watling, the CEO and chief market strategist at Longview Economics.

Chris, great to have you here.

Thank you so much for joining me.

Great to be here.

I appreciate it.

Well, 2026 has been off to quite the volatile start, but about the rotation we're seeing what's underneath the hood.

I think it's fascinating.

I think the markets actually behaving very rationally and it's rotating away from big liquidity names, big thematic names which are a lot of AI and Mag 7 as you mentioned, and gold and silver, and it's rotating into cyclical stuff because the global economy is wonderfully positioned to accelerate and the market of course anticipates that.

It's been anticipating it really since the back end of last year.

I, you know, I think we're nicely set.

If you look at all the macro across the West, across the US, Europe, look at ISM manufacturing just last week, new orders up at 57, their highest since late 2022, or in fact German new orders last earlier this last week, sorry, I forget which week we're in, um, up sharply 7% month on month.

I mean really it's, it's, it's like the Kraken awakes, the giants awaking.

We're going to get a global recovery, which changes what assets do well.

Yes, and speaking of the global outlook, when we look at the global equity averages, we're looking at an outperformance outside of the US.

So what's behind this?

Well, this is the wonderful thing.

If you look at the German economy since COVID or since 2022 when everyone started raising rates, you'll remember big rate hikes back then.

Since 2022, the German economy hasn't grown.

Until now, and now it's waking up as I said.

It's like the slumbering mini giant.

America is the giant along with China, but Europe is obviously a big economic region, so it's starting to get going.

It's starting to respond to fiscal and monetary stimulus.

We've got this German defense plan.

We've got this German fiscal package that the new Chancellor of last year brought in.

So um so I think this is all creating growth, having not had any, and that's creating rotation away from just the US, so it's all macro driven at its heart, basically.

Yes, and of course when we're talking about US markets, we're keeping an eye on the AI trade.

There are a lot of moving parts here and because we have to look at the hyperscalers, what do you think of what's happening and what do you make of the CAP expectations?

Well, this is actually great for the real economy.

This is old school how you're supposed to grow an economy.

You grow it with capex, you grow it with productivity growth, innovation, and a lot of that capex trickles down, of course.

Building out of data centers requires a lot of construction workers.

It requires a lot of people in the bottom half of the income scale which has struggled so much in the US in the last couple of years.

So I think I think it's going to drive a broadening recovery.

And of course what the market is doing, it's saying well that's fine you can spend all that money on Capex, but you haven't got that cash, so we're going to mark you down for that whether you're Amazon or Microsoft or whoever and of course and then you've got the whole software story going on as well.

I think what we're seeing is really a broadening of the US recovery that is good for the global economy and good for the US and speaking of what's happening here in the US, we are expecting more stimulus to come through here, whether we're talking about monetary or fiscal.

So what do you think?

Means for the Federal Reserve and in turn, what do you make of what we're seeing in bonds?

Yeah, look, I mean the curve is steepening and rightly so you know the curve the US yield curve steepens up into recoveries and so bond yields are off a bit this morning.

That's they were quite oversold last week.

That's not too surprising.

But 2 year yields are off more, which is great.

So you're getting the curve steepening up, signaling more economic recovery and of course we've got a new Fed coming in, Fed Chair probably Walsham he's probably going to get confirmed, and I think he's looking to this greenspan kind of productivity miracle story.

And I think he's going to cut rates into that, and there's no doubt AI is a very powerful technology, so it's quite an exciting time for the US economy.

So I think the curves steepening is a good sign and consistent with that rotation into cyclicals.

Yes, and talking about what's happening around the globe, I think one way to look at this is to look at the currency markets and what's been happening with the US currency, in particular the debasement trade.

So what do you make of that and how focused are you on the US currency?

The debasement trade is all part and parcel of the gold trade, and gold has done very well in the last 6 months.

I mean it's really part and parcel of the gold trade for the last 50 years.

The debasement trade is not a new thing, it's just a new thing in the discussion, and I guess anyone who's been invested in Bitcoin has been thinking about that for a long period of time.

I know, I think it's it's gotta be, you've got to think about it in chapters.

You know, markets never go in a straight line, and I always like to say as soon as everyone's talking about it, it's in the price.

So everyone's talking about the debasement trade.

I wouldn't be a buyer of gold and silver here, I'd be a seller for a couple of years.

I'd be a buyer on a 20 year view or a 10 year view or whatever, but I think we need a chapter where they pause and slow and.

And don't and actually give back some of those gains.

Yes, and as we head into the rest of this year, I'm sure your outlook is determined.

So has it changed since the beginning of this year and what does that actually look like?

Um, I, I don't think our outlook's changed, but, um, although the geopolitical issues sometimes make you wonder, um, the sort of Greenland stuff and, or, or the Venezuelan stuff and the Iranian stuff, and, but, but those come and go.

Geopolitics tends to be very noisy but doesn't tend to make that much difference in markets or macro.

So our outlook is very positive for the global economy in 2026 and very positive for the global stock market, and really it's back to the idea that the global stock market for the last six months has been broadening.

It's not just been a mag 7 story, it's all sorts of other stuff as well.

So we're really looking forward to the rest of the year.

I think it's good.

Yes, and when we're talking about how things eventually shake out, you mentioned some of the geopolitics that we're monitoring.

Obviously we're keeping an eye on what's happening in the Middle East as well as south of the border in the US, but you know there are a lot of tariffs, a lot of concerns when it comes to geopolitics.

But at the same time, when we look at what's happening in the US equity markets, the gains are holding.

So moving forward, how are you keeping an eye on what's happening outside of the US?

Well, we watch geopolitics every day.

I mean you can just watch the oil price if you want a proxy for what's going on, but I mean it's always important, but I always say if you look at a chart of the S&P 500, what really matters most is liquidity and global economic growth.

Those are the key things.

If the global economy is growing, if the US economy is growing, you've got your earnings growth, you've got liquidity, asset prices are going to tend to go up.

We watch the geopolitics, but frankly, if you look at a chart of the S&P over 50 years, there's not many times you can see where the geopolitics was.

You can see where the recessions were and the big bear markets and tight fed money, but you can't really see the geopolitics very well, and occasionally it works, but I wouldn't over obsess with it.

But yeah, watch the oil price, the global geopolitics, but don't get too caught up in it.

And finally, before I let you go, we have less than 60 seconds here, so you mentioned price.

Do you have any price targets for this year?

Um, we don't tend to have price targets because we tend to think of direction of travel, but.

I wouldn't be surprised if the S&P did 5 to 10% this year, but I think other parts of the emerging markets in Europe will do better.

So it's definitely a year to diversify.

Weak dollar, non-US equities outperforming.

So, if you put on 10% of the S&P, that would be a good year anyway, but.

You know, Greece is Greece is a strange country.

I don't know how much people talk about it in in the States, but um it's doing remarkably well, it's one of the top performers this year.

Spain was one of our big picks last year, it was a great performer.

So yeah, so it's been, uh, you know, there's a lot, there's a lot to look out for to keep our eyes on.

Thank you so much for joining me, Chris, and thank you so much for your insight.