TEN-YEAR TREASURY YIELD RISES TO SEVEN-YEAR HIGH -- REGIONAL BANKS GAIN ON HIGHER YIELDS -- WHILE RATE SENSITIVE REITS TUMBLE -- S&P 500 SUFFERS MODEST PULLBACK -- DOLLAR JUMPS TO SIX-MONTH HIGH WHICH HURTS GOLD BUT SUPPORTS SMALL CAPS
TEN-YEAR TREASURY REACHES 3.08%... The 10-year Treasury yield rose 8 basis points today to 3.08% which pushed it above its late 2013 peak near 3.03%. The monthly bars in Chart 1 shows the TNX now trading at the highest level since the summer of 2011. That's nearly seven years ago. From a charting standpoint, that upside breakout appears to have completed a major bottoming formation in bond yields that started with the 2012 bottom. And it leaves little doubt that bond yields are heading even higher. Chart 1 also shows that the next potential upside targets are at 3.74% and 4.00% which were the peaks formed from 2011 to 2010. Bond prices fell today as yields rose. The weekly bars in Chart 2 show the 7-10 Year Treasury Bond iShares (IEF) falling below its late 2016 low today which puts it at the lowest level since 2015. The IEF had already fallen below a "neckine" drawn under its 2015/2016 lows in a major topping pattern. There seems little doubt now from a charting standpoint that bond prices have indeed formed a major top.
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Chart 1
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Chart 2
S&P REGIONAL BANKING SPDR GETS A BOOST ... While most stocks pulled back on the breakout in bond yields, bank stocks gained ground. Especially regional banks. Chart 3 shows the S&P Regional Banking SPDR (KBE) rising .6% today. Bank stocks usually benefit from rising bond yields because they can chart higher rates for their loans. Its relative strength ratio (top box) is near a new 2018 high. Rate sensitive utilities lost ground, while REITs were the day's weakest sector. Chart 4 shows the Real Estate Sector SPDR (XLRE) tumblng today after meeting resistance at its 200-day average. Its relative strength ratio (red line) also fell sharply after peaking in April (when yields turned up). Dividend paying REITSs don't do well when bond yields are climbing.
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Chart 3
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Chart 4
S&P 500 SUFFERS MODEST PULLBACK ... Chart 5 shows the S&P 500 losing 18 points (-0.68%) today but closing well off its lows. That's wasn't too surprising after its impressive gains over the past couple of weeks and today's breakout in bond yields. The SPX remains well above its 50-day average (blue arrow). Healthcare and technology stocks were among the day's biggest losers. Energy stocks saw a small gain as oil prices continued to rise. The jump in bond yields pushed the dollar to the highest level in six months which pushed gold prices sharply lower. The rising dollar, however, may have helped small cap stocks which held up better than large caps. Chart 6 shows the S&P 600 Small Cap Index showing a small gain today after hitting a new record last week.
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Chart 5
