STOCKS END VOLATILE FRIDAY IN THE RED -- BUT GAIN ON THE WEEK -- TECH STOCKS WEAKENED ON FRIDAY WHILE CYCLICAL SECTORS GAINED -- REITS AND UTILITIES LED WEEK'S GAINS -- BOND YIELDS ALSO ROSE
STOCKS END VOLATILE FRIDAY LOWER... Stocks opened sharply lower on Friday on news that President Trump and the First Lady had tested positive for the coronavirus. Then news of some possible fiscal stimulus helped them make back some of their earlier losses. By the end of the day, however, all three major stock indexes ended the day lower. The Dow held up slighter better, while the Nasdaq suffered the biggest loss. Chart 1 shows the Dow Industrials managing to end above its 50-day average but just barely; while Chart 2 shows the S&P 500 ending below its 50-day line. Both indexes remain below overhead resistance levels formed two weeks ago at 28,400 for the Dow and and 3428 for the SPX (red lines). The tech-dominated Nasdaq market was the day's biggest loser. Chart 3 shows the Nasdaq Composite Index losing -2.2% on the day and ending right on its 50-day line. The Nasdaq also backed off from chart resistance near 11300. A lot more was happening beneath the surface, however.
MIXED SECTOR PERFORMANCE...While technology and communication stocks were weak all day, six stock sectors ended the day in the black. They include real estate, utilities, industrials, energy, materials, and financials. News of a possible stimulus deal on Friday helped boost more economically-sensitive cyclical stocks including airlines. Financials may have benefited from another rise in bond yields. In addition to those six sectors, transportation and small cap stocks also gained ground on Friday. The buying of REITs and utilities, however, may reflect a more defensive tone in the market. They were also among the week's strongest gainers.
REITS AND UTILITIES HAVE STRONG WEEK...Chart 4 shows the Real Estate Sector SPDR (XLRE) rising to the highest level in two weeks after clearing its moving average lines. It was the week's strongest sector. Chart 5 shows the Utilities SPDR (XLU) rising to the highest level in nearly two months after clearing its moving average lines. Utilities were also one of the week's strongest sectors. REITs and utilities were also Friday's two biggest gainers. Their relative strength ratios in the upper boxes are also starting to rise. Since both are generally considered to be defensive in nature, their stronger performance may be a sign that investors are turning more cautious.
TREASURY YIELDS RISE...One of the more puzzling trends of the week was the rise in Treasury bond yields. The daily bars in Chart 6 show the 10-Year Treasury yield gaining 2 basis points on Friday to .69% and nearly 4 bps for the week. The 30-Year Treasury yield gained even more. Normally a rise on bond yields is a sign of more optimism on the economy. Their rise on Friday was especially puzzling as stock prices weakened. Investors normally buy bonds when stocks weaken. Instead, they sold Treasuries on Friday and during the week. By contrast, investment grade corporate and high yield bonds which are more closely tied to stocks gained during the week. That also implies that bond traders may be a bit more optimistic than stock traders.
VOLATILITY INDEXES GAIN ON THE WEEK... Chart 7 shows the CBOE Volatility (VIX) Index jumping earlier on Friday before paring some of its morning gains. But it ended higher for the day and the week. A move above its most recent peak near 31 would send a more negative message for stocks. Chart 8 shows a slightly stronger CBOE Nasdaq 100 Volatility Index (VXN). It too gained on Friday and the week. Any further rise in that index would suggest more volatility ahead in the tech-dominated Nasdaq market. That shouldn't come as much of a surprise to chart watchers given all of the uncertainties surrounding the November election and stimulus talks in Washington.
Our best wishes and prayers go out to the President and First Lady for a swift recovery.
