Cyclicals Seen Outpacing Tech as Rate-Cut Bets Gather Steam; JOLTS, Mortgage Risk and EU Fine Jolt Market Sentiment
Equity rotation talk is back as a leading Wall Street strategist tips industrials, materials and financials to lead in 2026 on the back of anticipated rate cuts, even as mixed U.S. job openings, rising mortgage risk and a fresh EU tech fine complicate the macro picture for FX and global stocks.
Rotation watch: rate-sensitive cyclicals vs. mega-cap tech
A senior strategist at Bank of America favored cyclical sectors—industrials, materials and financials—over technology for 2026, arguing that eventual policy easing could re-energize earnings leverage to the real economy. In equity factor terms, that setup typically supports value and small-to-mid caps over expensive growth, while in FX it often coincides with firmer pro-cyclical currencies if global PMIs stabilize.
– For equities, lower discount rates plus improving growth tends to lift economically sensitive shares versus long-duration tech.
– In FX, a growth-friendly easing cycle can weaken the U.S. dollar on narrower rate differentials, supporting the euro, AUD and NOK—provided risk appetite holds.
Labor signals: JOLTS hovers near 7.7 million as traders eye FOMC
U.S. job openings for October were near 7.7 million, a level consistent with a cooler, more balanced labor market even as one cut of the JOLTS report showed openings ticking higher. The nuanced read keeps the FOMC in focus: a sustained glide lower in labor tightness tends to pressure Treasury yields and the dollar, while any re-acceleration would reprice the policy path.
– For rates, a softer labor backdrop typically flattens front-end expectations and supports a gradual pivot narrative.
– For FX, softer yields often weigh on the USD, while haven bid in the JPY can emerge if growth worries overshadow risk appetite.
Housing stress watch: risky mortgages hit highest share since 2008
“Risky” mortgages climbed to 7.4% of advances, the highest since 2008, as buyers stretch budgets. That raises macro fragility risks if higher-for-longer rates persist or if home prices slip. For banks, rising risk appetite in lending can widen net interest margins near term but elevate credit risks later. In FX, housing stress historically nudges the market toward safer assets and can anchor yields lower, a USD-negative if not accompanied by risk aversion.
Trade frictions and farm backstop
Farmers are set to receive $12 billion in government aid to counter tariff pressures. Critics argue the plan is a circular patch that doesn’t resolve trade frictions, with farm bankruptcies having surged. Commodity traders will parse whether support stabilizes planting intentions and cash flows; soy and corn volatility can spill into broader inflation narratives and rate expectations.
Cyber losses spike: phishing scams jump 137% in November
Reported phishing losses hit $7.77 million in November, up 137% month on month, with “permit” exploits a notable vector and recovery rates near zero. Beyond personal finance, rising fraud can influence retail trading flows and platform trust. Market participants should tighten operational security, particularly around high-volatility events when phishing attempts surge.
Regulatory risk: EU fines X €120 million
The European Union fined X €120 million for rule breaches, with Germany warning U.S. companies to adhere to local laws or face sanctions. While not a macro shock, persistent regulatory overhang adds to multiple compression risk for large-cap tech and may contribute to the latest bout of “big tech wobbles,” even as the Dow edges higher on cyclical strength.
Key Points
- BofA favors cyclicals—industrials, materials, financials—over tech into 2026 on expected rate cuts and real-economy rebound.
- U.S. JOLTS near 7.7M underscores a cooler labor market; traders focus on FOMC guidance and rate-path calibration.
- Risky mortgages at 7.4% of advances, the highest since 2008, flag rising household leverage and potential credit risk.
- $12B farm aid aims to cushion tariff pain; critics see a stopgap that doesn’t fix underlying trade dynamics.
- Phishing losses up 137% to $7.77M in November; recovery rates are near zero, raising operational risk for investors.
- EU fines X €120M, amplifying regulatory risk for U.S. tech; big tech dips while the Dow edges higher.
Market implications for FX and global stocks
– USD and yields: A cooling jobs backdrop keeps front-end yields capped, a modest headwind for the U.S. dollar if risk sentiment stabilizes. Watch two-way USD volatility around FOMC communications.
– Equity leadership: If the soft-landing narrative holds, cyclicals could outperform high-duration tech. Conversely, any growth scare could reverse the rotation.
– Credit and housing: Rising risky mortgage shares argue for vigilance in bank credit and housing-linked equities; a benign outcome likely requires a timely policy pivot.
– Regulation and tech multiples: EU enforcement heightens headline risk for large platforms, adding to valuation sensitivity as rates normalize.
This article was produced for BPayNews.
FAQ
How could a rotation into cyclicals affect the U.S. dollar?
A successful rotation typically implies improving global growth expectations and narrower U.S. rate advantages, which can weigh on the dollar. Pro-cyclical currencies (euro, AUD, NOK) tend to benefit if risk appetite remains firm.
What does the JOLTS data mean for the Fed and FX markets?
Job openings near 7.7 million suggest easing labor tightness. If the trend persists, it supports a gradual policy pivot, softens Treasury yields, and can pressure the USD. Any upside surprise in labor tightness would reprice cuts and support the dollar.
Why is the rise in risky mortgages a concern for markets?
At 7.4% of advances, risky mortgages are at their highest since 2008. Elevated household leverage increases default sensitivity to rate shocks and home price declines, posing risks to bank credit, housing shares, and broader risk sentiment.
Does the EU fine on X matter for U.S. equities?
Yes. While the fine is modest for a large platform, it reinforces a stricter regulatory regime that can pressure tech valuations, contribute to factor rotation toward cyclicals, and add headline risk.
What’s the market read-through of $12B in farm aid?
The aid helps stabilize farm incomes but doesn’t resolve trade frictions. It may reduce immediate stress in agricultural supply chains while leaving commodity price volatility and inflation pass-through risks in place.
Why should traders care about the surge in phishing losses?
With losses jumping 137% to $7.77 million in November and recovery near zero, operational risk is rising. Compromised accounts often lead to forced asset liquidations and missed market opportunities during high-volatility periods.
