10-YEAR TREASURY YIELD HEADED TOWARD TEST OF 2017 LOW -- THAT'S HELPING PUSH DIVIDEND PAYING STOCK SECTORS INTO RECORD TERRITORY -- BUT IS CAUSING BANKS TO LAG BEHIND
10-YEAR TREASURY YIELD NEARS TEST OF 2017 LOW... The 10-Year Treasury yield is falling another 6 basis points today to 2.06% which is drawing dangerously close to its 2017 low. The weekly bars in Chart 2 show that year's intra-day yield low at 2.03%. Its lowest closing value for that year is 2.06%. The TNX appears headed for a test of that important low. That's pushing bond prices higher today. But it's also boosting dividend-paying stocks. Consumer staples, utilities, and REITs are hitting record highs.
STAPLES, UTILITIES, AND REITS HIT NEW RECORDS... Charts 2, 3, and 4 show the Consumer Staples (XLB), Utilities (XLU) and Real Estate SPDRs (XLRE) all trading in record territory. Falling bond yields increase the appeal of stocks that pay higher dividends as investors look to those stocks for higher yields. And explains why investors continue to rotate into those defensive groups in the face of a relatively strong stock market. Falling bond yields also help explain why bank stocks are lagging behind.
LOSING INTEREST IN BANKS... Financials stocks are the day's weakest sector. And banks are the weakest part of that sector. Banks are one of the few stock groups that are in the red today, while the rest of the market is rallying. Chart 5 shows the KBW Bank Index ($BKX) still trading well below its moving average lines and trying to hold support at its March low. Falling bond yields hurt the profitability of banks because it lowers the rates they can charge on loans. The solid red line is a ratio of banks divided by the S&P 500. The falling red line shows banks underperforming the SPX since January. The falling green line shows the 10-Year Treasury yield falling as well. The main message there is that falling bond yields are contributing to bank underperformance.
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Chart 1
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Chart 2
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Chart 3
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Chart 4
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Chart 5
STOCK INDEXES CONTINUE TO ADVANCE ... Stocks are having another strong day. And are testing some overhead resistance levels. Chart 6 shows the Dow Industrials rising to challenge their 50-day average (blue line) and initial chart resistance near 26,000. In addition, its 14-day RSI line (top box) is rising above 50: while its daily MACD lines (middle box) are turning positive. Chart 7 shows the S&P 500 trading above its 50-day average in morning trading; and nearing a test of resistance at 2892. Its MACD histogram bars overlaid on the price bars have also turned positive. Chart 8 shows the Nasdaq Composite Index trading back over its 200-day average (red line) and moving higher as well. Its MACD histogram bars have also turned positive. Ten sectors are rising today led by technology, internet, and cyclical stocks (financials are flat). Healthcare is also getting better.
DRUG STOCKS LEAD HEALTHCARE HIGHER ... The healthcare sector is also having a strong chart day. Chart 9 shows the Health Care SPDR (XLV) rising above chart resistance at its May highs. For the second day in a row, it's being led higher by drug stocks. Chart 10 shows Pharmaceutical Index rising to the highest level in two months. Drug stocks also pay dividends.
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Chart 7
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Chart 8
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Chart 9
