JUMP IN GLOBAL BOND YIELDS PUSHES STOCKS INTO DOWNSIDE CORRECTION -- TEN-YEAR TREASURY YIELD HITS TWO-MONTH HIGH -- STOCKS ARE FALLING WITH BOND PRICES -- THE DOW AND S&P 500 SPDRS ARE BREAKING 50-DAY LINE IN HEAVY TRADING
TEN-YEAR TREASURY YIELD CLIMBS TO TWO-MONTH HIGH... The upturn in global bond yields that started Thursday on ECB inaction continues today. Bond yields are rising sharply around the globe (after hawkish comments from another Fed governor). Ten year yields in Germany and the UK are up 7 and 10 basis points respectively. Chart 1 shows the 10-Year Treasury yield surging 6 basis points to the highest level in two months. Bond prices are falling sharply as a result. The jump in bond yields is causing heavy profit-taking in global stocks. Foreign developed stocks are down -2%, while emerging markets are losing -3%. U.S. stocks are also falling sharply in heavy trading. All market sectors are in the red. Rate-sensitive groups like utilities are being hit a bit harder, while financials a little less. Gold miners are also falling on the jump in rates and a bouncing dollar. Major stock indexes are breaking moving average lines, while the CBOE Volatility (VIX) has jumped to a two-month. This looks like it could be the start of a September correction.
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Chart 1
DOW AND S&P 500 SPDRS FALL BELOW 50-DAY LINES... Charts 2 and 3 show the Dow Industrial (DIA) and S&P 500 (SPY) SPDRs falling decisively below their 50-day averages in very strong volume. This has the makings of the worst chart day since June. The next level of support is the horizontal line drawn over June highs. That will be first test of how serious the downturn is.
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Chart 2
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Chart 3
VIX INDEX JUMPS TO TWO-MONTH HIGH... Chart 4 shows the Volatility (VIX) Index jumping 27% to the highest level in two months. That jump is another sign that investors are buying put options to protect against a market correction. September may be living up to its reputation as one of the worst months of the year. We'll take another look at today's damage over the weekend.
