TECH SELLOFF RESUMES WHILE FINANCIALS GAIN -- THAT CONTINUES THE ROTATION OUT OF GROWTH AND INTO VALUE STOCKS THAT STARTED ON JUNE 9 -- TECH SPDR UNDERCUTS 50-DAY AVERAGE -- BANKS GAINED ON STRESS TEST RESULTS AND RISING BOND YIELDS
TECH SECTOR UNDERCUTS 50-DAY AVERAGE...STRESS TEST BOOSTS BANKS... Everyone in the media is suddenly talking about a rotation out of technology-dominated growth stocks into value stocks led by financials, healthcare, and (to a lesser extent) energy shares. We wrote about that on the day it started (June 9): "Investors Are Selling Technology and Buying Financials -- That Suggests A Rotation Out of Growth And Into Value Stocks". That message also showed healthcare stocks rising, and mentioned energy and materials as potential value gainers. Chart 1 shows the Technology Sector SPDR (XLK) slipping below its 50-day average today for the first time this year. After leading the market higher all year, tech is the market's weakest performer during the month of June. That can be seen by the falling XLK/SPX ratio (red line). Chart 2 shows the Financial Sector SPDR (XLF) climbing to the highest level in three months. Financials have rallied this week on the back of rising global bond yields. Today's gain is also tied to banks passing their stress test yesterday, which allows them to raise dividends and announce share purchases (which several of them have announced). Its (green) relative strength line started climbing earlier in the month when tech shares started selling off. Financials and healthcare are the two biggest parts of the "value" universe. Chart 3 shows the Healthcare SPDR (XLV) also surging in absolute and relative terms since the start of the month. Financials and healthcare are June's two strongest sectors.
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Chart 1
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Chart 2
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Chart 3
VALUE/GROWTH RATIO HAS STRONG MONTH... The June 9 message also showed the following chart which is a "ratio" of the S&P 500 Value iShares (IVE) divided by the S&P 500 Growth iShares (IVW). After falling sharply during the first half, the value/growth ratio found support along its early 2016 low. Its 14-day RSI line (below chart) also showed the ratio to be in a very oversold condition. The RSI line is now rising. The value/growth ratio is finishing up its strongest performance of the year. The main point of Chart 4 was to show that the decline in the ratio was overdone and that a rebound was overdue. Although technology selling has weighed on the market, gains in financials and healthcare have helped offset some of those losses during the month.
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Chart 4
S&P 500 FALLS TO 50-DAY AVERAGE... Chart 5 shows the S&P 500 having its worst day of the month today. Even with today's loss, the SPX still shows a small gain for the month. That's thanks mainly to gains in financials, healthcare, and materials. Five sectors are in the black for the month and five in the red. The two biggest losers have been technology and energy. Financials are this week's strongest sector, while technology is the weakest. Interestingly, energy and materials were the second and third strongest sectors this week. Materials were led higher by copper stocks as that commodity rebounded. Energy shares are bouncing along with a very oversold crude oil market. A tumbling dollar may also be lending some support to commodity prices. The dollar continues to be undermined by rising foreign bond yields. Bond yields in Canada and Europe saw another day of big gains.
