JUMP IN BOND YIELDS CAUSES HEAVY SELLING IN REITS AND HOMEBUILDERS

STRONG JOBS REPORT PUSHES YIELDS HIGHER... A surprisingly strong July jobs report (with wages rising at the fastest pace in a year) have pushed bond prices sharply lower today and bond yields higher. Chart 1 shows the 10-year T-note yield jumping close to 4.40% which is the highest level in four months. As I've suggested as recently as yesterday, anything related to housing and real estate is especially vulnerable to rising bond yields. Those two groups are being sold hard today along with other rate-sensitive groups like financials and utilities. That's causing nervous selling in an overbought stock market as it enters the seasonally weak month of August.

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DHI AND TOLL BROTHERS LEAD HOUSING SELLOFF... The PHLX Housing Index is tumbling today and threatening to break its 50-day moving average. To show how bad the group is doing today, three of the weakest stocks in the S&P 500 are housing related. The day's worst loser is DR Horton which has fallen 6%. Chart 3 shows that homebuilder already trading under its 50-day line. Its relative strength line has also turned down. Chart 4 shows Toll Brothers breaking its 50-day line on heavy volume. That's a bearish combination. Also is the fact that its daily MACD lines have broken their July low. REITs are also getting hit hard today.

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REAL ESTATE ISHARES TUMBLE ON BIG VOLUME ... In the ETF world, REITs are the day's worst performers. The Real Estate iShares are down close to 4% and are falling on very heavy volume. That's weighing on the financial sector. Four of the day's biggest losers in the financial sector are REITs, and they're falling for the same reason as homebuilders -- rising bond yields. Utilities are also being hit hard today as dividend-paying stocks are starting to lose some of their appeal as bond yields start to rise. When rate-sensitive stocks fall, the market usually follows. MORE LATER.

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