SURGING BOND YIELDS HURT RATE-SENSITIVE UTILITIES AND FINANCIALS -- RISING DOLLAR HURTS GOLD -- MONEY STILL MOVING INTO ENERGY

STRONGER-THAN-EXPECTED RETAIL SALES PUSHES RATES HIGHER... The main catalyst for this morning's jump in interest rates -- and selling in stocks -- was the U.S. March retail sales report which was the biggest in a year. That sign of economic strength had the immediate effect of pushing bond prices lower and yields higher. Rising U.S. rates pushed the dollar to the highest level for the year against the Euro, which pushed gold prices down $12. Gold stocks have fallen 4%. Rate-sensitive utilities are the day's weakest group. Financial shares are also weak. As a result, Merrill Lynch is trading lower despite a strong earnings report. The only winning sector today is energy. Chart 1 shows the 10-year T-note yields jumping to 4.32% which is the highest level in three months. More importantly, today's jump in rates breaks the down trendline extending back to last August.

Chart 1

UTILITIES TUMBLE ON RISING RATES... Last week, the prospect for rising interest rats pushed homebuilders and REITs lower. This week's it's the rate-sensitive utilities that are being punished. The daily chart shows the Dow Utility Average tumbling to the lowest level in seven weeks after breaking its 50-day average. Its relative strength line is falling as well.

Chart 2

RISING RATES HURT FINANCIALS... Charts 3 and 4 tie the recent jump in long-term rates to the slippage in the financial sector. Chart 3 shows the jump in rates starting about three weeks ago. Chart 4 shows that's when the relative strength line in the Financials Select Sector SPDR started falling. That's because fianncial stocks are also hurt by rising rates. That group includes banks and brokers. Their relative weakness also explains why Merrill Lynch is dropping today in the face of a strong earnings report. Chart 5 shows that the 50-day line for Merrill is now acting as a resistance barrier for the brokerage bellwether.

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SUNOCO RISES, NEWMONT TUMBLES... The inflationary threat from rising energy prices is also behind the recent jump in rates. As a result, some money moving out of rate-sensitive groups is moving into the energy sector which is rising today. One of the day's strongest stocks is Sunoco which is rising to a new all-time high. The jump in rates, however, is boosting the dollar which is pushing gold shares down. Newmont Mining is one of the day's weakest stocks and is falling under its 50-day moving average.

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