(Click on Link for tonight’s notes)
Monday was a day of mixed reviews as the major indexes all moved lower on the day with the exception of Russell 2000 small caps up 0.05%! Telecom was the only sector to close in the green and all the interest sensitive assets tumbled lower as the selling has taken root with interest rates rising. The general belief is the Fed will hike rates later this summer or in the fall. The yields are rising in advance of the move as you would expect, but the aggressive movement is pushing the yields up faster than anticipated by the markets. The ten-year bond is at 2.27% and the thirty-year bond is 3.03%. The break above 3% is significant if it holds and continues to climb. The ripple effect to mortgages could have a negative impact on the housing market. If and when the rates for mortgages climb above 4 or 5% it could slow purchases. Bottom line we are bringing new worries to the table with this shift in yields.
Wednesday is the retail sales data for April and it will give a barometer for how the economy is recovering from the slowdown in the first quarter. Following the better jobs report and higher average hourly earnings of 2.2% for the 12 months ending April, expectations are for modest sales growth. The consensus is for the numbers to be slow enough to keep the Fed engaged in stimulus of lower yields. As stated above the damage inflicted short term by the rise in yields is a real issue facing markets. Any delays due to indicators showing more weakness is almost good news for stocks… at least that is the way they are trading currently. Watching to see how this unfolds near term and we will take what the market gives.