Intermarket Relationships Chart Update

The major story over the last month has been the impact of rising bond yields and their effect on the overall market.  This updated chart from StockCharts.com provides a graphical representation of what has transpired over the month of June in terms of major market relationships:

Interpretation:

The Yield on the 10 Year Treasury Bond (Note) has indeed taken a toll on the overall market and on interest rate sensitive areas.  The 3.18% rise during July resulted in a stock market (S&P 500) correction of 1.76% (and a few major distribution days) as well as the Financial (and Banking) sector being taken down 4.81% and 3.96% respectively.

Housing and Real Estate Investment Trusts were hit hardest in June for a variety of reasons, suffering 9.62% and a major 11.56% respectively.  Utilities – a sector that is very sensitive to interest rate increases – was not hit as hard as it could have been.

What this signals for the overall market is that continued upward pressure on bond yields, or some extraneous market dislocation could send already skiddish investors to cash out their positions and move to safer positions, which would undoubtedly put large negative pressure on US equities.

Problem areas remain the sub-prime mortgage/lending areas, as well as global interest rates and economic conditions.

Always view the larger picture when considering swing trading or position trading candidates.