Another winning session for cyclical/value stocks seen in the overnight US session while growth and technology related theme plays got clobbered again due to the fears of a liquidity squeeze triggered by the continuation of the rise in the long dated US Treasury yields; the 10-year yield jumped by four basis points to close at 1.60%, a whisker below 1.61% high seen two weeks ago.
A positive observation to note was that the US stock market did not witness a broad based selling across the board yesterday (as compared on 26 February & 4 March) as the more cyclical/value weighted Dow Jones Industrial Average has managed to record a gain of +0.97% to close at 31,802 and even hit a fresh intraday all-high of 31,148. In addition, the small caps Russell 2000 added +0.49% to 2,202. At the end of the other spectrum, the technology heavily weighted Nasdaq 100 plummeted by -2.92% to 12,299 and wiped out gains recorded on last Friday, 5 March. The S&P recorded a modest loss of -0.54% to 3,821.
Market breadth was not all doom and gloom as there were more advancers versus decliners as per recorded on all the stocks listed on the NYSE by a ratio of 1.54 where the advance/decline ratio for all stocks listed on the Nasdaq was almost unchanged. Based on the performance seen in the broad based S&P Sectors, seven out of the 11 sector were in the green with outperformances seen in the cyclicals/value (Materials, Financials & Financials) that recorded gains between +1.29% to +1.05%, coupled with the defensive Utilities that took leadership position with a gain of +1.39%. In contrast, the worst performers were Information Technology (-2.46%) and Communication Services (-1.46%).
Overall, its is more of a continuation of rotational shift towards cyclicals/value theme plays in place since the start of 2021 while overvalued technology/growth stocks faced the brunt of indiscriminate selling pressure across the globe rather than a major topping process. Even this “tech bug flu” has spread to China big tech stocks that outperformed over its US peers in Q4 2020, the Hong Kong TECH Index has tumbled by -26% from its all-time high of 11,001 printed on 18 February. One interesting observation to note will be the outperformance of European stock markets (a laggard in the past one to three years) that are heavily weighted in cyclicals, where the German DAX rallied by +3.3% and staged to bullish breakout from its 3-month sideways range to print a fresh new all-time closing high of 14380.
Over to the foreign exchange market, the on-going rising US 10-year Treasury has caused its spread to widen over the yields of other sovereign 10-year bonds where has supported the recent revival of strength seen in the USD in the past two weeks. The US Dollar Index has rallied by 2.93% from its 25 February low of 89.68 to yesterday’s US session close of 92.31, a three-month high. Right now, the US Dollar Index is now hovering just a significant resistance/inflection zone of 92.60/93.00 which is defined by a pull-back resistance of the former major ascending support from the low of 4 May 2011 coupled with the daily RSI oscillator that has inched up into overbought region (71 level now) with an extreme overbought level of 79 printed on 20 Feb 2020).
Perhaps, we may see a bit of breather soon for the current bout of USD strength. One clue will be taking a look at the chart of the USD/JPY where this pair has been the outperformer in terms of USD strength; the USD/JPY rallied by +3.7% from its 23 February low to print a close of 108.85 in yesterday’s US session, right now it is just below a major resistance zone of 109.30/109.60 which is defined by a descending trendline in place since June 2015 high with the current daily RSI oscillator at an extreme overbought level of 84, a whisker below the prior 85 extreme overbought level recorded in 24 November 2016.