Bond Yield Breakout
The markets are sharply lower this morning on mixed economic data and rising bond yields. There were also a couple of disappointing earnings reports last night from Cisco and Wal-Mart. CSCO lowered its guidance for next quarter and said it will reduce its workforce by 5%. WMT also reduced guidance for full-year 2014.
Economic data was mixed. The August NAHB Housing index rose to 59 from 56 last month. And jobless claims fell for the week. But the Empire Manuf. index fell to 8.2 from 9.46 last month, and the Philly Fed survey fell to 9.3 from 19.8. Industrial production was flat in July vs. expectations for 0.4%.
The net long-term TIC flows report showed that foreign buyers were once again net sellers of our debt to the tune of roughly -$85 billion. This could be exacerbating the selling in bonds, which is driving yields on the 10-year T-note as high as 2.80%. That marks a breakout from the recent highs near 2.73% and takes the 10-year yield to its highest levels since Aug. 2011.
Asian markets were mostly lower overnight. Hong Kong reopened and finished unchanged. Singapore retail sales fell -4.0%.
Europe's markets are all lower today. Trading is light around Europe as many participants are out for the Assumption Day holiday. Great Britain's retail sales rose 1.1% for the month. On a year-over-year basis it was the best reading since January 2011.
The dollar is roughly flat today. Oil prices are a touch higher to $107, which is getting high once again. And gold prices are a bit weaker near $1325.
The volatility index is spiking 10% to 14.40. It briefly touched its overhead 50-day average closer to the 15 level. When the VIX was down near 12 recently, we said we thought that would mark the lows and a move towards 15 was likely. We should have eaten our own cooking, as the VXX has moved up roughly 8% over that time frame.
Trading comment: We have said recently that we wanted to be patient with cash balances as it was likely that the market had more consolidating to do. We wanted to see if the 1684 level in the S&P 500 would hold or not. Today that level has been broken decisively. The SPX touched 1659 this morning, which is within 3 points of its 50-day average. A bounce from the 50-day is a fairly normal occurrence. As for the other indexes, the Nasdaq is still a little ways above its 50-day while the Dow has already broken below its 50-day support. So its a bit of a mixed bag by looking at the 3 major indexes. From here we will be monitoring leading growth stocks. They are in the midst of corrections also, and when they start to firm up and break out again will be the best sign that the market has regained its footing.