The Fed's announced on Friday to reimpose on March 31 an exemption granted big banks a year ago to resume holding capital on balance sheets against Treasury bonds and cash on deposit at the Fed. But aren't Treasury bonds and cash on deposit at the Fed supposed to be risk free?
We heard the Fed wanted to continue the exemption, but progressive Senators insisted on returning to post financial crisis reforms. We do not know at this point if the Fed's move is a first hint of an acceleration of anticipated rate hikes. In any event, banking stocks - which had recent gains of over 30% - saw considerable profit-taking.
Actually, the market uses any excuse to book profits. In addition to banking and financial stocks, energy, and small caps - all having strong gains - also underwent profit-taking. Our analysis indicates these stocks remain in strong bullish trends despite having pulled back into value buying zones, where "buying the dips" usually take place. For now, the selloff in tech is not indicating a market selloff as we would expect small caps to fall first.
The recent spike in Treasury yields seems to have been an over-reaction. Today's market action saw occurrence of the inverse correlation, also noted Monday morning on Bloomberg TV, between big tech stocks and long-term US Treasury yields. Indeed, the 10-year Treasury Yield fell 2.77% on Monday while the Nasdaq 100 rose 1.88%.
Despite today's pullback from overbought levels the S&P 600 and 400 indices remain in strategic Bullish trends. US small and mid-cap leading large cap.
Equity Styles: While the underlying trend favors Large Cap Value, Large Cap Value showing on par relative strength vs. Large Cap Growth since May 9th. We are monitoring if nearing inflection point.
Ranked Sectors: Trend Leaders - Transportation Industry, Energy, Financials, Industrials; Laggards - Real Estate, Health Care, Consumer Staples, Utilities.
The 30-year US Treasury Bond Yield fell to 2.383% from 2.476%; the 10-year Note Yield fell to 1.684% from 1.732%. Trend lines for both are up. Yield curve widened to 1.54.
The Australian Dollar and British Pound were choppy in Bullish trends. The Yen plunged to oversold; Euro appears to be topping and is on Bear Alert.
The US Dollar rose 91.74 after breaking to upside from a base-building (since December) pattern. Gold is Bearish at oversold level 2 and rose slightly. Short term Market indicators show low risk of significant market pullback; however, positions with large gains have seen profit-taking. Systemic risk is not indicated.