Q1 Market Outlook: Reflation Pause

The copper/gold ratio is used as a barometer for risk-on versus risk-off. The ratio is now testing long-term resistance, which could signal a pull-back in the reflation trade.Equities are still preferred over bonds, especially given a series of relative breakouts in the SPY/TLT ratio. However, it appears that long-duration bonds are deeply oversold, which means Treasury yields could recede over the short-term. US growth stocks are oversold versus value stocks, but the broader uptrend is shifting downward. For now, upside appears limited for momentum stocks, particularly concentrated in the tech sector. Healthcare and biotech, although lagging in terms of relative strength, have held support on shorter time frames.The broad commodities complex has reached our initial upside target (similar to the late 1990s in the Dow Jones Commodities Index). Downside should be limited amid seasonal weakness, and we expect the global economic recovery to keep buyers active at lower support levels. 

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