STOCKS START SEPTEMBER ON A WEAK NOTE -- MAJOR STOCK INDEXES BACK OFF FROM OVERHEAD RESISTANCE -- INDUSTRIALS, FINANCIALS, AND TECH ARE WEAKEST SECTORS -- UTILITIES AND REITS HIT NEW HIGHS -- TEN-YEAR BOND YIELD DROPS TO THREE-YEAR LOW
MAJOR STOCK INDEXES BACK OFF FROM OVERHEAD RESISTANCE...Stocks are only halfway through one of the year's weakest seasonal stretches between August and September. And September is usually the weaker of the two. And they're starting the month on a weak note. Another round of tariffs imposed on Sunday, combined with the first contraction in U.S. manufacturing in three years, is contributing to the more cautious mood. So is another drop in bond yields, with the ten-year Treasury yield falling to the lowest level in three years. Eight sectors are in the red led by industrials, financials, and technology. While defensive sectors are gaining ground, with bond proxies like utilities and REITS hitting new highs. Consumer Staples aren't far behind. The Dollar Index is hitting a two-year high which is hurting commodities like copper and oil. Gold and silver, however, continue to attract safe haven money with both precious metals hitting new highs. Gold miners are also having another strong day.
Chart 1 shows the Dow Industrials backing off from overhead resistance along their August highs, and 50-day average (blue arrow). Chart 2 shows the S&P 500 doing the same. Chart 3 shows the Nasdaq Composite Index also backing off from overhead resistance. That inability to clear their August highs keeps the three major stock indexes in a sideways trading range, and leaves open the possibility of a retest of their August low. Banks are being hit especially hard by falling bond yields to lead financials lower. While smaller stocks and transports are also experiencing heavier selling. Looks like another risk-off day all around.
RISING DOLLAR HURTS COPPER AND OIL...The green line in Chart 4 shows the US Dollar Index (UUP) rising to the highest level in two years. Most of the dollar gains are coming against the euro and British pound. A rising dollar is usually bad for commodity prices. And most of them are falling today. Copper and oil are among the day's weakest. The falling black line shows crude falling more than -2% today. The brown line shows copper falling to the lowest level in more than two years. While those economically-sensitive commodities are dropping, safe haven precious metals are hitting new highs for the year. That's more a function of falling bond yields, and concerns about a weakening global economy. Silver prices are rising even faster than gold.
GOLD AND SILVER HIT NEW HIGHS...Chart 5 shows the Gold SPDR (GLD) climbing to a new six-year high today. Chart 6 shows Silver iShares (SLV) rising to the highest level in three years. Silver is also gaining 4.0% today which is more than twice as much as gold's 1.3%. That isn't something new. Although gold led the rush into precious metals during May and June, silver took the lead during July and August. That can be seen by the rising SLV/GLD ratio in the upper half of Chart 6.
