TREASURY BOND YIELDS JUMP ALONG WITH EUROPE ON ECB INACTION -- CRUDE OIL AND ENERGY SHARES JUMP ON PLUNGE IN OIL INVENTORIES -- RISING YIELDS SUPPORT FINANCIALS -- LEADERS ARE BANK OF AMERICA, PNC, MORGAN STANLEY, GOLDMAN SACHS, AND LINCOLN NATIONAL
TREASURY YIELDS FOLLOW EUROPE HIGHER... Chart 1 shows the 10-Year Treasury Yield ($TNX) climbing six basis points to 1.60%. That followed a jump in European bond yields following the ECB failure to announce any additional monetary stimulus. That caused selling in European sovereign bonds, which led to selling here. The climb in sovereign bond yields is contributing to selling of stocks. Financial stocks like banks, brokers, and life insurers, however, are benefiting from the jump in yields. The jump in European bond yields is probably the main reason behind today's jump in Treasury yields. Another may a big jump in the price of oil. That's also give a big lift to energy shares which are day's strongest sector.
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Chart 1
CRUDE OIL SURGES ON PLUNGE IN INVENTORIES ... The price of crude oil is surging 4% on a plunge in inventories. Chart 2 shows the United States Oil Fund (USO) jumping back above its 50-day and 200-day moving averages. That's giving a big lift to energy shares. Chart 3 shows the Energy SPDR (XLE) climbing to the highest level in more than a year. Its relative strength ratio (top of chart) is doing the same. [My August 19 message suggested that the inflationary impact of rising energy prices might exert upward pressure on bond yields]. Rising bond yields are helping financials which are the only other sector in the black.
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Chart 2
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Chart 3
FINANCIAL SPDR CONTINUES TO SHOW RELATIVE STRENGTH ... The daily bars in Chart 4 show the Financials SPDR (XLF) with modest gains today. But that's in the face of a generally weak stock market. The XLF/SPX ratio (top of chart) has been rising since the start of the July making financials one of the third quarter's strongest sectors. I take that as a sign that investors are beginning to anticipate higher bond yields. And as is usually the case when bond yields are rising, the financial leaders are banks, brokers, and life insurers.
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Chart 4
BANK OF AMERICA AND PNC ARE BANK LEADERS... Chart 5 shows the S&P 500 Bank SPDR (KBE) holding its recent breakout. Chart 6 shows PNC Financial (PNC) trading at the highest level in eight months after clearing its June high. Chart 7 shows Bank of America (BAC) already in an uptrend. Its 50-day average has just crossed over its 200-day line. Asset managers and life insurers are also having a good day.
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Chart 5
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Chart 6
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Chart 7
MORGAN STANLEY, GOLDMAN SACHS, AND LINCOLN NATIONAL LOOK STRONG... The Broker/Dealer iShares (not shown) is trading at an eight-month high. One of its leaders -- Morgan Stanley (MS) -- is in a strong uptrend with a rising relative strength line (Chart 8). Chart 9 shows Goldman Sachs (GS) breaking through its April high to complete a bottoming pattern. Life insurers also benefit from rising bond yields. Chart 10 shows Lincoln National (PNC) trading above its summer high. Prudential Financial (not shown) is close to doing the same.
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Chart 8
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Chart 9
