FED LEAVES RATES UNCHANGED BUT SETS STAGE FOR JULY RATE CUT -- BOND AND STOCK PRICES GAIN -- BIG DROP IN BOND YIELDS WEAKENS BANK STOCKS -- WEAK DOLLAR PUSHES GOLD TO NEW HIGH FOR THE YEAR -- HEALTHCARE SPDR ACHIEVES BULLISH BREAKOUT
STOCKS GAIN ON EXPECTED RATE CUT... The Fed left rates unchanged today, but dropped the word "patient" from its statement, and gave the strong impression that a rate cut is likely. Fed fund futures are betting on a rate cut in July. That sent bond and stock prices higher. Chart 1 shows the S&P 500 ending the day near the highest level in more than a month; and appears headed for a test of its early May peak. Seven sectors gained ground, with healthcare in the lead. The Health care SPDR (XLV) closed at the highest level of the year. A big drop in bond yields boosted utilities and bond proxies like staples and REITs. But hurt banks.
The daily barsChart 2 shows today's sharp drop in the 10-Year Treasury yield. The TNX ended 3 basis points lower at 2.03% (and 7 bps off its earlier high). The drop in bond yields ended a rally attempt in bank stocks. Chart 3 shows the S&P Bank SPDR (KBE) turning lower right at its 200-day moving average. The financial sector also lost ground.
WEAK DOLLAR BOOSTS GOLD...Bets on a July rate cut pushed the dollar lower against most foreign currencies. Chart 4 shows the Dollar Index (UUP) in the red today following the Fed statement. As usually happens when the dollar and bond yields fall, gold rose. Chart 5 shows the Gold SPDR (GLD) closing above its February peak. That's the highest close for GLD in more than a year. The Gold Miners Index (GDX) hit a new high as well.
