Market leadership continues to narrow in the US as financials, real estate, and consumer sectors weaken, while industrials, materials, and select energy names show strength. Barometer has reduced exposure to financials and gold, added to copper and industrials, and increased cash to preserve flexibility. With US market breadth deteriorating, the firm is focusing on dividend growth, quality industrials, and global diversification, particularly in regions and sectors showing stronger relative momentum.
Key Points:
Weakness Emerging in Financials
The US financial sector, represented by the broad XLF ETF, is losing relative strength. Insurance and regional banks are underperforming, with insurance unable to make new highs since late 2024 and regional banks now below their 200-day moving average. This weakness signals concern around credit and commercial real estate exposure.
Consumer and Real Estate Under Pressure
Consumer-related sectors such as homebuilders, retail, and consumer staples are showing notable weakness. Homebuilders are down roughly 30% from their 2024 highs, mortgage REITs are trending lower, and defensive sectors like consumer staples and low-volatility ETFs are also underperforming. Barometer has short positions in homebuilders, mortgage REITs, and real estate.
Industrial Strength Led by Machinery and Mining Equipment
Industrials remain a bright spot, with companies like Finning and Caterpillar performing strongly. Caterpillar’s earnings were up over 25% year-over-year, and the firm is benefiting from strong global demand, particularly in mining and power generation equipment. The data center generator segment also shows strong growth potential.
Energy and Materials Opportunities
Selective strength continues in energy and materials. Large caps like CNQ and Suncor are steady despite weak energy prices, and Tamarack Valley exceeded earnings expectations. Materials exposure has been shifted from gold to copper, reflecting rotation into more cyclical commodities as inflation persists.
Portfolio Adjustments and Defensive Cash Position
Barometer has reduced its financials weight from 28% to 18%, increased industrial exposure to 18.5%, and maintained technology around 11%. The firm holds 12% cash to preserve flexibility given weak US market breadth. Defensive sectors such as healthcare, consumer staples, and real estate are being avoided due to continued softness.
Market Outlook and Strategy
The team remains cautious on US market breadth and expects tech earnings to determine near-term leadership. The focus remains on dividend growers and strong industrial and commodity names. There’s an emphasis on diversification outside North America as international and resource-based opportunities strengthen, while higher rates and credit tightening pressure roll-up and private credit-heavy companies.