05 Oct IS A TECTONIC ROTATION IN ITS INFANCY?
Equites fell amid hawkish comments from Federal Reserve officials. High dividend shares and companies sensitive to a higher dollar declined the most while banks gained. Utilities are now down for eight consecutive sessions. Consumer staples and phone companies also got hit.
As noted many times the above sectors are grossly over owned. Several weeks ago I commented that according to Bloomberg if utilities traded at their aggregate average yield this sector would decline about 45%. Consumer staples would decline about 42% if this group reverted to its average dividend yield.
Wow! Most have yet to acknowledge the interest rate risk inherent in these shares.
Speaking of interest rates, the bond market fell again yesterday with yields approaching pivotal technical points. The ECB stated yesterday that it would gradually wind down bond purchases before the conclusion of its $1.9 trillion QE program.
The next several days the economic calendar is busy culminating with Friday’s release of the BLS employment survey. How will the data influence the perceptions of monetary policy and the direction of some of the most over owned sectors?
Last night the foreign markets were mixed. London was down 0.53%, Paris down 0.56%, and Frankfurt down 0.59%. China was up 0.21%, Japan up 0.50%, and Hang Sang up 0.42%.
The Dow should open flat ahead of a data deluge. Oil is up again because of another unexpected decline in inventories, its fifth consecutive unexpected decline. The 10-year is flat at 1.68%.