Mind the Gap

Issue 52;

• A clear divergence between market leaders and laggards is opening up.
• Industry is strong, while Defensives reawaken. Mexico surges.
• Software throws in the towel.

The World Index retains a ByteTrend Score of 5 in USD, having dipped two points on Thursday. This is a Teflon market.

World Index – Developed Markets – Daily

To illustrate the importance of the weak dollar, I show the world in SEK, the strongest currency over the past year. The ByteTrend Score drops to a 2, highlighting that the tailwind is achieved by measuring the trend in a weak currency.

World Index – Developed Markets – Daily in SEK

World Regional Performance

Over the past year, Emerging Markets, Europe, and Japan continue to lead. The US and the seven largest technology stocks now lag. Mexico is riding high.

Global Equity Breadth

Despite the shake-out in the technology sector last week, global breadth increased, which is remarkable. Notably, 55% of stocks are in price uptrends.

Global Equity Breadth – CAPR

As the US and large stocks turn down, the opportunity for more stocks to outperform grows. Alpha has been thin on the ground since late 2025, but the opportunity set is expanding. Active managers, step up.

Country Classification Changes

There are 15 Norwegian companies in our universe, of which 10 have a local score of 5. Other European nations are strong, along with Mexico, Brazil, and Japan. The US, China, and Taiwan lagged in the tech crash.

Sector Trends in CAPR

Energy, Industrials, and Materials are strong, and have recently been joined by Defensives and Real Estate. The remaining value in this bull market is finally being unlocked. Tech is weak.   

Performance by Trend Type

Most importantly, this week has seen a dispersion open up between the winners and the losers for the first time in a year. This is late-cycle behaviour. A future bear market will need a weak group, which has come. The strength of the leadership will eventually snap when this divergence becomes too wide. Enjoy it while it lasts.

Regions and Industries Average CAPR Score

Software has been falling down the table for weeks, and last week it hit the headlines. It is rock bottom, now by a wide margin. Media and Entertainment stocks continued to slide, as they have ever since the Netflix vs. Comcast battle over Warner Bros. began. Advanced industrials also gave up ground, as they are connected to the AI trade, which is driving big tech lower.

Food and Beverage producers and retailers strengthened notably, as reliable trumped remarkable in investors’ worried minds. Home and Lifestyle products rose too, for similar reasons. Manufacturing in the Americas was also strong, as were Chemicals/Commodities in Europe, and Transport/Logistics everywhere. Metals and Mining strengthened even further, with Asia now joining in too.

Leading Trends with New Highs

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of 5. All charts shown are CAPR rebased to 100.

Caterpillar

As metal prices soar, buyers of mining equipment are increasingly flush with cash, supporting demand for the highest-quality machines from Caterpillar. Late January results showed that Q4 sales set an all-time quarterly record, with 18% YoY growth driven by all segments. The hit from tariffs was less than expected, as volume growth offset the worst of it. The backlog grew 71% to $51 billion, a record level, and its fleet of operating autonomous haul trucks reached 827.

PetroChina

A steady five-year outperformance is not what you would expect from PetroChina, given the weak oil price of recent years. State-backed, it makes hefty dividend payments, while domestic gas demand has grown at 10% annually. It also has no qualms about profiting from refining discounted Russian gas, putting it at an advantage over Western rivals.  

Grupo Mexico

Results in January showed revenues grew 12%, with rising margins, driven by all divisions at Grupo Mexico, a leading Mexican conglomerate focused on mining. As the 90% owner of Southern Copper, it is one of the world’s largest producers, and with AI and electrification, demand growth and supply shortage fears are driving its price higher.

New Leading Trends

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of 5, except they are new trends this week, having previously had a score below 5. All charts shown are CAPR rebased to 100.