STOCKS HIT NEW RECORDS AS BOND YIELDS AND THE DOLLAR CLIMB -- FINANCIALS, INDUSTRIALS, AND MATERIALS LEAD RALLY -- SO DO SMALL CAPS AND TRANSPORTS -- GOLD AND OTHER SAFE HAVENS WEAKEN
STOCKS SURGE TO NEW RECORDS ... Last night's presidential speech appears to have re-energized the reflation trade that favors stocks over bonds, and economically-sensitive stocks in particular. The first three charts show ETFs of the three major U.S. stock indexes gapping into new highs. Their RSI lines remain elevated, but that doesn't seem to matter today. What's also impressive is that the stock rally is being led higher by financials, materials, and industrials. Industrial metals, and stocks tied to them, are having a strong day. Small caps and transports, which had been lagging behind, are both hitting new highs as well. Bond yields are jumping sharply as bond prices drop. That's giving a big boost to financial stocks like banks, brokers, and life insurers. The dollar is sharply higher as well. Gold prices are selling off.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
(click to view a live version of this chart)
Chart 3
BOND YIELDS GAP HIGHER... Yesterday's message showed the 10-Year Treasury Note yield (TNX) testing the lower end of its 2017 trading range. The pullback in bond yields raised concerns that investors might be losing confidence in the Trump rally. The daily bars in Chart 4, however, show the TNX gapping sharply higher, as bond prices plunge. The TNX is also back above its 50-day average. The TNX still needs to clear its Februay high (2.52%) to resume its uptrend. Money moving out of bonds is most likely moving into stocks. Bond yields may also be benefiting from the prospect of a Fed rate hike in the near future. Expectations for a March rate hike have jumped to 60% over the last week. That's also giving a boost to the dollar. The stronger dollar, rising bond yields, and record high stock prices are causing selling in gold along with other safe havens.
