STRONG JOBS REPORT PUSHES INTEREST RATES SHARPLY HIGHER AND TREASURY BONDS LOWER -- HIGHER RATES BOOST BANKS AND BROKERS -- BUT HURT UTILITIES AND GOLD -- S&P 500 ENDS DAY LOWER WHICH KEEPS IT IN TRADING RANGE
STRONG JOBS REPORT PUSH RATES HIGHER... A strong jobs report on Friday pushed interest rates sharply higher all across the yield curve. The daily bars in Chart 1 show the 10-Year Treasury Note yield jumping to the highest close in a month. [Bond prices fell sharply as a result]. Short-term rates jumped even more. Chart 2 show the 2-Year Treasury Yield jumping to a monthly high as well. That big jump in rates helped banks and brokers have a strong day, but caused heavy selling in rate-sensitive groups like REITs and utilities. Higher rates and a stronger dollar also hurt gold. The stock market ended the day on the downside after trading higher earlier in the day. Energy stocks were the week's strongest sector which helped stocks during the week.
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Chart 1
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Chart 2
BANKS AND BROKERS JUMP ON FRIDAY ... A big jump in banks and brokers made financials Friday's strongest sector. Chart 3 shows the KBW Bank SPDR (KBE) jumping above its moving average lines to reach the highest level in a month. Its relative strength ratio (top of chart) has turned up as well. Banks generally benefit from rising interest rates. Brokers also had a strong day. Chart 4 shows the DJ Broker Dealers iShares (IAI) climbing above its 50-day average as well. Rate sensitive groups that follow the bond market fell sharply.
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Chart 3
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Chart 4
UTILITIES FALL WITH BOND PRICES... Bond prices fell sharply on Friday as yields surged. Chart 5 shows the 20+Year Treasury Bond iShares (TLT) falling sharply in heavier trading. That made utilities the day's weakest stock group (and the only sector to end the week in the red). Chart 6 shows the Utilities Sector SPDR (XLU) tumbing 4% on Friday in heavy trading. Its relative strength line (top of chart) also fell sharply. The XLU broke its 50-day average for the first time in four months. Utilities compete with bonds for yield, and are hurt when rates jump. REITs, which are also hurt by rising rates, lost -3% on Friday. Gold stocks also got hurt.
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Chart 5
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Chart 6
GOLD FALLS SHARPLY ... Gold benefits from falling rates and a weaker dollar. It got hurt on both fronts on Friday. The big jump in rates pushed the dollar sharply higher. That combination pushed gold $31 dollars lower (a loss of -2.5%). Chart 7 shows gold falling back below its 200-day average on rising volume. Gold shares also fell. Chart 8 shows the Market Vectors Gold Miners ETF (GDX) losing -5.5% at week's end which kept it below its 200-day moving average. Gold stocks have been market leaders during the first two months of the year. Higher rates might change that.
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Chart 7
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Chart 8
S&P 500 REMAINS IN TRADING RANGE... The attempt by the S&P 500 to break out to the upside was turned back on Friday afternoon. Chart 9 shows the S&P 500 trading above its twin January intra-day peaks at 2064 earlier in the day, but closing lower at week's end. That prevented an upside breakout and kept the SPX in a sideways trading range. The unusually sharp jump in interest rates may have given stock traders some second thoughts in afternoon trading.
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Chart 9
COMMODITIES BOUNCE FROM DEEPLY OVERSOLD CONDITION ... Despite Friday's selloff, stocks had a good week. One of the supporting factors was the rebound in commodity markets, and oil in particular. Falling commodity prices have raised concerns about deflation, which has pushed bond yields lower all over the world, and hurt countries tied to commodities (like Australia, Brazil, Canada, and Russia). That's why this week's bounce in commodities may be a good sign. The weekly bars in Chart 10 show the CRB Index (of nineteen commodities) ending the week higher for the first time this year. Although the biggest weekly gain was in energy, agricultural and industrial metals also gained. The only loser was precious metals. That's not enough to signal a bottom. However, prices are very close to potential major support along the 2009 bottom; and the 14-week RSI is at an extremely oversold level. That may at least be signalling some stabilization coming back into commodities. That would certainly help commodity-related stocks like materials and energy, as well as regions of the world that are tied to commodities. It might also relieve deflation worries.
