FALLING BOND YIELDS BOOST UTILITIES -- AT&T HITS RECORD HIGH -- FOOD STOCKS LEAD CONSUMER STAPLES -- DOLLAR WEAKENS WITH SHORT-TERM RATES -- DOW BOUNCES ON RISING CRUDE
BONDS AND UTILITIES ARE RISING TOGETHER... With the 10-Year Treasury yield slipping back below 2.00%, bond prices are rising. The daily bars in Chart 1 show the Barclays 7-10 Year iShares (IEF) nearing its January high. Rate-sensitive stocks like utilities usually rise right along with bonds. Chart 2 shows the Utilities Select SPDR (XLU) surging today to a three-month high. Lower bonds yields also benefit other dividend-paying groups like telecom (AT&T and Verizon), REITS, and consumer staples. Lower bond yields increase the appeal of dividend-paying stocks.
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Chart 1
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Chart 2
AT&T TURNS UP ... Yesterday's message showed a strong chart pattern in Verizon (VZ). Today's message shows AT&T (T) also acting very strong. The daily bars in Chart 3 show the telecom leader having exceeded its June high near 35 to reach a new record high. Its relative strength ratio (top of chart) is also surging. The green line in Chart 3 shows the 10-Year yield dropping during January when the price of the stock and its relative strength line started rising. AT&T pays a dividend yield over 5% which is more than twice the 2.00% paid by the 10-year Treasury bond. Verizon pays a yield of 4.6%. No wonder yield hunters are buying into the telecom leaders (along with utilities).
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Chart 3
FOOD STOCKS CONTINUE TO FATTEN ... Previous messages showed a menu of food stocks that were turning up including Campbell Soup (CPB), Hormel Foods (HRL) and Tyson Food (TSN). Chart 4 shows McCormick (MKC) surging nearly 4% to clear its 50-day average. Chart 5 shows JM Smucker (SJM) hitting a new record. Chart 6 shows Kellogg (K) nearing a record high as well. Other leaders include Dean Foods (DF) and Kraft Heinz (KHC). The three food stocks shown below also have rising relative strength lines. Investors are shopping for profits in food stocks.
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Chart 4
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Chart 5
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Chart 6
DOLLAR WEAKENS... One of the side-effects of yesterday's Fed inaction has been a weaker dollar. That is also due to the recent drop in U.S. rates, including the two-year maturity. The Fed has been concerned about a strong dollar because of its deflationary effect on commodities, its negative impact on large multinational U.S stocks, and emerging markets. A weaker dollar may in fact have motivated yesterday's more dovish statement. Chart 7 shows the PowerShares Dollar Index ETF (UUP) turning down today. That may be helping the day's rebound in energy prices. It may also explain today's stability in stock prices, including emerging markets. Energy is the day's strongest sector.
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Chart 7
DOW STABILIZES WITH OIL ... A rebound in energy prices is lending some support to the stock market. Chart 8 shows the Dow Industrials rebounding today. That's enough to keep it above chart support formed last week. The gray area shows a strong correlation between the Dow and crude oil since November. Right now, a bouncing crude oil price is helping stocks to stabilize.
