The week started off optimistically on Monday as the markets enjoyed a late-day rally, paring earlier losses as the S&P 500 managed to close slightly in the black. The energy sector was the winner of the day, while technology was the weakest, dragged down by the semiconductors, Apple and Apple suppliers. Perhaps Tim Cook ought to send Wonder Woman Gal Gadot a basket of muffins at the very least for her attempt to help the company this week, inadvertent as it may have been. The Energy Select Sector SPDR (XLE) has broken out of the $66-$69 trading range that had persisted since early February, closing at just shy of $75 by Thursday’s close.
Monday, the US Dollar closed at its highest level since mid-January and hasn’t looked back, breaking out of the trading range that had persisted for most of the year, rising well above its 50-day moving average with the 200-day within striking distance by Thursday’s close. While the greenback had been rather directionless over the past few months despite rising treasury yields, it looks to be finally catching up. The PowerShares DB Dollar Index ETF (UUP) has risen above its 200-day moving average for the first time in a year. A breakout for the dollar to the upside would be a significant headwind to the S&P 500 in the coming months as a stronger dollar would hurt exports. Conversely, it would be a boon for the smaller cap, Russell 2000.
Tuesday looked like a solid day in the pre-market action but ended up being a rough one as the 10-year Treasury yield reached over 3% for the first time in four years during intra-day trading, closing the day just below. The U.S. is not the only nation seeing rising rates, with the U.K., Germany and Japan as seeing rates moving higher. Caterpillar (CAT) started the day off strong after reporting both revenue and EPS results that beat expectations and raised guidance. Shares were up as much as 5% in the morning, which would have you thinking, “Pop open the Bollinger,†but then the CFO mentioned that they are thinking this might be peak earnings for the cycle. I’m thinking the post-earnings call debrief might have gotten a little testy in the C-suite given shares traded in a range of over 11%, closing right around the lows of down 5.8%. The market has become so jittery that other industrials also took it on the chin after the CFO’s remarks, Deere and Co (DE) falling nearly 5.5% and Cummins (CMI) dropping over 4.5%.
The Technology sector was hit hard on Tuesday by Alphabet (GOOGL) shares which fell almost 5% despite a strong earnings report. Most of the major U.S. equity indices were heading towards a test of their 200-day moving average.
Despite the 10-year Treasury closing at a yield over 3% on Wednesday for the first time since 2014, the Dow Jones Industrial Average and the S&P 500 managed to eke out slight gains as the S&P 500 bounced off its 200-day moving average for the third time since February. The Nasdaq and Russell 2000 couldn’t quite get the motivation to move out of the red for the day.
