DROP IN BOND YIELDS BOOSTS RATE-SENSITIVE STOCKS -- DOLLAR FALLS WITH RATES -- DOW AND S&P 500 TESTING 50-DAY AVERAGES
BOND YIELDS TUMBLE TO TWO-MONTH LOW... A weaker than expected June jobs report pushed the 10-year T-note yield to the lowest level in two months as shown in Chart 1. The benchmark yield fell beneath its 50-day average on Tuesday and signalled the start of the lower trend. That's having a positive impact on rate-sensitive stock groups like the financials, homebuilders, and utilities. The hint at economic weakness, however, is pushing technology and economically-sensitive industrial stocks lower. Falling yields are pushing the dollar to a three-week low against the Euro which is giving a boost to gold. Gold is trading $2.00 higher near $398 and is trying to climb back over $400. Although the stock market is continuing the pullback that started yesterday, none of the major stock indexes has broken its 50-day moving average.
Chart 1
FINANCIAL AND UTILITY ETFs BOUNCING OFF 50-DAY LINES... Charts 2 and 3 show the Financial and Utility ETFs bouncing off their 50-day moving averages. The Financials have been underperformers for the last couple of months as rates have risen. Their relative strength line may be turning up however. The Utilities are the stronger of the two and are the day's strongest sector. The Utility relative strength line is also closer to an upside breakout.
Chart 2
Chart 3
HOMEBUILDERS AND REITS ARE DOING BETTER... Three of the top five S&P 500 performers today are homebuilders. The strongest is Pulte Corp which is bouncing off its 50-day moving average. The relative strength line tumbled in early April as rates started to rise. The RS line is starting to strengthen again. REITs also tumbled in early April when rates started to rise. The Morgan Stanley REIT Index is climbing to a three-month high today as is its relative strength line.
Chart 4
Chart 5
DOW AND S&P TESTING 5O-DAY LINES... The market is selling off today on ligher volume. This appears to be a continuation of the selloff that started yesterday. It's also possible that investors are taking some profits in advance of the long holiday weekend. The Dow Diamonds and the S&P 500 SPDRs are testing support near their 50-day moving averages. Today's drop in bond yields should help stabilize the market.
Chart 6
Chart 7
