The interaction between valuation, sentiment as calibrated through price momentum, and policy is key. Differences in the valuation of cyclical stocks relative to defensive industrial stocks has only through the past quarter moved slightly away from hitherto unseen extreme levels. Sentiment, as ever, has followed this move, as measured through price momentum, with “valuations” of cyclical stocks in some cases seemingly moving faster than the 50% moves in share prices, down and then up, seen through the past year. Macro policy continues to be a major factor behind why such extremes in multiples of defensive industrials and cyclical stocks exists. Consensus is that macro policies seen through recent years continue unabated, and equity prices aggressively reflect this consensus. Any move away from this policy position, however, will have outsized consequences for equity multiples, which, is why rhetoric suggesting a broadening of policy away from the narrow QE focus of recent years is important for relative returns between these sectoral extremes. We discuss this further in “Price vs value: a dangerous game” (VIEW LINK)