DROP IN BOND YIELDS MAY BE BOOSTING TECHNOLOGY SHARES

DROP IN BOND YIELDS CASTS DOUBT ON STIMULUS SPENDING...After rising over the last two months, bond yields fell sharply today.  The 10-Year Treasury yield on Tuesday reached the highest level since early June on expectations for more stimulus spending and the resulting need to finance that spending by selling more bonds.   Chart 1, however, shows the TNX falling 11 basis points today to 0.76%.   That pushed bond prices sharply higher.   Today's big drop in yields may be casting new doubts on the size of any fiscal aid which may be a result of increased chances for a divided government.   Those chances are due mainly to Republicans holding onto their majority in the Senate.   That may account not only for today's sharp rally in stocks, but the nature of that rally.

DROP IN YIELDS FAVORS TECHNOLOGY... Over the last two months as bond yields were rising, some money rotated out of growth technology stocks into more value-oriented cyclical groups like industrials, materials, small cap stocks and, to a lesser extent, financial stocks in a so-called reflation trade.   As a result, technology stocks lagged behind over those two months.   Several of those trends reversed today.  Technology  showed new leadership today while industrials, materials, small caps, and financials lagged behind.   Bank stocks fell with yields.   It remains to be seen if today's shift back to technology continues.  And if the drop in bond yields puts a temporary cap on the reflation trade.