RISING BOND YIELDS BOOST FINANCIALS -- FINANCIAL SPDR BOUNCES OFF 200-DAY LINE -- BANK LEADERS INCLUDE REGIONS FINANCIAL, SUNTRUST, AND JP MORGAN CHASE -- PRUDENTIAL AND UNUM ARE LIFE INSURANCE LEADERS -- E*TRADE AND SCHWAB LEAD INVESTMENT SERVICE GROUP
BOND YIELDS JUMP... Chart 1 shows the 10-Year Treasury Yield ($TNX) bouncing strongly today. That's partially the result of stronger economic news this week combined with higher inflation. The Consumer Price Index (CPI) for April saw the biggest gain in three years. Most of that came from rising gasoline prices. Rising commodity prices, however, have been warning that the inflation cycle has most likely bottomed. Rising bond yields carry good and bad news. It's bad news for bond prices which are falling today, along with dividend-paying stocks like staples and utilities. But it's good news for financial stocks like banks, broker dealers, and life insurers which do better when bond yields are rising. That explains why financials are the day's strongest sector.
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Chart 1
FINANCIAL SPDR BOUNCING OFF MOVING AVERAGE LINES... The daily bars in Chart 2 show the Financial SPDR (XLF) bouncing off its 50- and 200-day moving averages today. The XLF/SPX relative strength ratio (top of chart) may be resuming its uptrend as well. The XLF is being led higher by banks, life insurers, and investment service stocks.
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Chart 2
BANK LEADERS INCLUDE REGIONS FINANCIAL, SUNTRUST, AND JPM... Three of the top percentage bank gainers are shown below. All three are trading over their 200-day lines. Chart 3 shows Regions Financial (RF) turning back up after bouncing off its 200-day line. The stock may also be on the verge of exeeding a falling trendline extrending back to last August. Chart 4 shows Suntrust Banks (STI) in an even stronger position. Chart 5 shows JP Morgan Chase (JPM) bouncing off its moving average lines as well. Insurance stocks are also having a strong day.
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Chart 3
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Chart 4
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Chart 5
PRUDENTIAL AND UNUM ARE LIFE INSURANCE LEADERS... Life insurers also benefit from rising bond yields. And they're doing that today. The daily bars in Chart 6 show the Dow Jones US Life Insurance Index ($DJUSIL) trading back over its 200-day average. Chart 7 shows Prudential Financial (PRU) doing the same. Chart 8 shows Unum (UNM) in an even stronger position. Its 50-day average has just crossed over its 200-day line.
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Chart 6
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Chart 7
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Chart 8
E*TRADE AND SCHWAB ARE TURNING UP... Investment service stocks are also having a strong day and are helping lead the financial sector higher. Chart 9 shows ETrade Financial Corp (ETFC) very close to rising above its 200-day average. Chart 10 shows Charles Schwab (SCHW) about to do the same. Upside breakouts by both stocks would be a positive sign for them and the market. Stocks in the investment services group have been underachievers over the last year as the market has struggled. Upside breakouts by that group, and new signs of market leadership, could be interpreted as a vote of confidence in the market.
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Chart 9
