Quiet Signals Before the Storm

July 11th, 2025

A few weeks ago, I was walking through Central Park with a childhood friend who now leads macro strategy at a top hedge fund. We talked about life, family, and markets. At one point, he turned and asked, “You still watching the transports?”

I smiled. “Every day.”

He laughed. “People forget the old signals. They still work.” That stuck with me.

In managing capital for families, endowments, and institutions, the most reliable market insights still come from time‑tested indicators. They’re not always headline‑grabbing, and they don’t stand alone. But when they align, they often whisper before the market starts shouting.

Here are three classic indicators I track—and today, they’re all green.

Dow Theory Divergence

Charles Dow argued over a century ago that a healthy bull market requires both the Dow Jones Industrial Average (DJIA) and the Transportation Average (DJTA) to move in sync. If industrials rise while transports don’t, demand may be slowing. This happened ahead of the 2000 tech crash and again before the 2007 financial crisis.

But that’s not where we are now. Transport and industrial stocks are aligned, confirming the market’s upward trend. There is no significant divergence between these sectors, which supports continued bullish momentum.

Defensive Sector Leadership

When money shifts into utilities, staples, and healthcare, it often signals risk‑off positioning—late‑cycle caution. But in 2025, growth sectors are clearly leading. Technology and consumer discretionary stocks have been among the best performers this year, far outpacing defensives. S&P data shows that tech led the second quarter with a return of over 20%, while healthcare and energy lagged well behind.

This rotation pattern reinforces a risk-on environment, not a defensive one.

Financial Sector Health

Bank stocks—the plumbing of credit—often reveal stress early. But right now, financials are holding up well. The Financial Select Sector SPDR ETF (XLF) has posted positive returns year-to-date and is outperforming several major sectors. Credit conditions remain stable, and loan growth is still positive. There are no red flags at this stage.

Current Market Take

All three classic signals are aligned bullish:

• Transport‑industrial alignment confirms the uptrend.

• Defensive sectors are lagging, not leading.

• Financials remain strong, not stressed.

  
  

In addition, broader macro conditions support this positioning. Equities are up, credit spreads are contained, and growth sectors continue to lead. Some respected voices in the market, including strategists at UBS and Ed Yardeni, see further upside potential as earnings estimates hold and productivity gains continue.

My Position—and Yours

I’m not complacent. Markets can shift quickly. But right now, I remain constructively positioned.

I lean into quality growth—tech, selective industrials, and healthcare.

I’m not moving to full defense, but I’m holding cash reserves and hedging around key levels.

I continue to monitor credit spreads, lending conditions, and yield curve behavior.

If transports diverge, defensives begin leading, or financials falter—then it’s time to shift posture. Until then, I’m staying invested, balanced, and vigilant.

Final Takeaway

These silent signals—the Dow Theory, sector leadership, and financial health—don’t trend on social media, but they inform disciplined investing. Right now, they say stay the course.

For institutional and family office portfolios, that means embracing growth, while keeping risk controls in place and staying alert to change.

Because the edge in investing is often not just being right—but knowing when to listen.