Tuesday, May 12, 2015

Where is Weakness Coming From in the Stock Market?

It's interesting to note that, according to the excellent screening tools at FinViz, the three U.S. stock market sectors that have been down over the prior two quarters have been Conglomerates, Basic Materials, and Utilities (top chart).  Those are also the highest yielding sectors (bottom chart); the ones most sensitive to movements in interest rates.

With bonds down recently (rates higher), recent weakness we've seen in stocks has been pronounced among rate-sensitive issues.  The three sectors down most over the past week are--you guessed it!--Conglomerates, Utilities, and Basic Materials.

Yesterday, we came within a few points of an all time high in the ES futures.  We closed with 387 stocks across all exchanges making fresh monthly highs and 374 making fresh monthly lows.  Much of the breadth weakness in stocks is related to the recent backup in yields.

Further Reading:  A Different Way of Tracking Stock Market Strength