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The defensive at nearly three deviations — and the excess that gave way

Episode

The extreme

For months domestic money piled up in the most predictable corner of the market — utilities, sanitation, concessions, whatever pays a dividend without asking how the economy is doing. The queue grew so long that the shelter turned into an anomaly: the defensive was expensive relative to the index as it almost never had been, stretched to nearly three deviations from its own historical average. In numbers: the Utilities/IBOV ratio opened February 2024 with a z of 2.93. The appetite for risk was rising — Perene Risk from 50.7 to 58.2 — while mood went nowhere (Ânima from 42.8 to 42.6). Selic at 11.25% a year, the dollar at R$4.96.

What happened next

In February the excess began to unwind: Utilities/IBOV pulled back from 2.93 to 1.92, the largest single move of the month. But what came next was not the return of the cyclicals. In May, leadership passed to commodities in reais — Commodities (R$)/IBOV jumped from z −0.08 to the top, +1.60 — with the weak real at R$5.13 repricing everything exportable, while the Cyclical/Non-Cyclical ratio sank to its absolute floor (−2.68). The money left the utilities, but it switched shelters, not regimes. In August, the market turned even more defensive: Cyclical/Non-Cyclical at −2.40, intermarket in strong risk_off (28.6).

What did not happen

The deflating of the defensive was not the start of a rehabilitation of the cycle. The Cyclical/Non-Cyclical ratio, which in February tried to improve from −0.64 to −0.27, reversed and collapsed: −2.68 in May, −2.40 in August. The loosening of the defensive premium was real, but the rotation ran inside the defensive camp itself — from concessions to the dollar embedded in iron ore. Relaxing an extreme is not turning a regime.

The honest verdict

The reading of rising risk appetite got the index right: six months later, the IBOV returned +6.5%, within the central band of the distribution — a deterministic verdict of a hit. But anyone who read the defensive's retreat as a signal of cyclicals coming back was mistaken: the cycle only sank further. An extreme that gives way tells you the tension has eased — not where the capital goes next.

Continue reading: When every defensive fills up · The premium of the refuge — Utilities/IBOV in Sep 2021 · Cyclicals vs. defensives: who leads each regime →

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Characters: Cyclicals × defensives · Statistical anomaly