Yields Rising and Rotation

For our beach investors… drink a Manhattan and get paid. 1M today could be around an extra 50k in one year with less risk than trading.

These are the best rates you can find in the fixed-income markets:

• C.D.s (New Issues): 5.40% (1-year term)

• U.S. Treasury Bonds: 5.31% (3-month term)

• U.S. Treasury Zeros: 5.16% (9-month period)

• Agency/GSE: 5.60% (2-year term)

• Corporate (Aaa/AAA): 5.56% (10-year term)

• Corporate (Aa/A.A.): 5.60% (9-month period)

• Corporate (A/A): 6.89% (3-month term)

• Corporate (Baa/BBB): 11.45% (5-year term)

• Municipal (Aaa/AAA): 4.17% (10-year term)

• Municipal (Aa/AA): 4.60% (20-year term)

• Municipal (A/A): 4.55% (20-year period)

• Taxable Municipal: 5.72% (30-year period)

For our street investors… face the wall with A.I. sentiment analysis and adjust your trading for Today (June 8, 2023):

Rising yields may weigh on equities as they typically indicate increasing company borrowing costs. With government bond yields rising due to interest rate hike concerns, the SPY is seeing marginal pressure pre-market, while the tech-heavy QQQ is down 0.2%. Given that higher interest rates can hit growth stocks harder due to their future-oriented cash flows, the Russell 2000 (RUT) could outperform if the rotation into value and cyclical stocks continue. Meanwhile, a 0.1% decline in Dow Jones Industrial Average futures also suggests slight pressure on the DIA.

Given that rising yields may cause an uptick in volatility, the VIX might see an increase. A rise in the CBOE Volatility Index supports this.

On the sectoral front, the news could impact various sectors differently:

1. Technology (XLK, IYW, IGM): Technology stocks could face pressure due to higher interest rates. A decrease in the SOXX could hint at bearish sentiment around semiconductor companies.

2. Consumer (XLP, VDC, IYK, XLY, RTH, XRT): Both staples and discretionary ETFs show slight declines or are flat, suggesting cautious sentiment in the sector. Negative news from GameStop could add to this pressure.

3. Healthcare (XLV, VHT, IYH, IBB): Healthcare ETFs are flat or inactive pre-market, with individual stock news such as Avita Medical's FDA approval causing specific movements.

4. Industrials (XLI, VIS, IYJ): The sector is showing strength, possibly benefiting from increased spending on defense and infrastructure.

5. Financials (XLF, FAS, FAZ): Financials could gain from a rising rate environment, benefiting from better net interest margins. The pre-market gains in XLF and FAS suggest a bullish sentiment.

6. Energy (IYE, XLE): Rising oil prices could benefit energy ETFs and stocks, although individual stock news such as the one from Vertex Energy could cause specific movements.

7. Gold (GLD) and Silver (SLV): These commodities are higher, likely benefiting from their status as safe-haven assets amid rising yields and rate hike concerns.

Overall, a blend of macroeconomic data (such as jobless claims and wholesale inventories), sector-specific developments, and individual stock news are driving the market sentiment.

Events

Earnings today

1. NIO: NIO Inc is a Chinese automobile manufacturer, producing electric vehicles. This stock has significantly declined in the last 52 weeks with a performance of -60.51%. Today's trade is at $7.76, slightly decreasing by -1.52%. Despite a large trading volume, its earnings per share (EPS) is negative at -$1.29, indicating the company is not profitable. This could be a reason for the bearish sentiment from 7 firms. The institutional ownership stands at 30.68%, relatively low compared to other stocks.

2. DOCU (DocuSign): DocuSign operates in the information technology sector and its performance in the last 52 weeks has been negative, down by -34.78%. Its EPS is also in the negative zone at -$0.49, which shows the company isn't making a profit currently. The firm's equity summary score is neutral with a score of 5.3 from 8 firms. Institutional ownership is at a high of 76.11%, indicating significant confidence from large financial institutions.

3. TTC (Toro): Toro operates in the industrials sector and has been positive in the last 52 weeks, with a performance increase of 19.95%. It has a positive EPS of $4.56, indicating profitability. The stock's trade for today is at $104.66, marking a slight increase of 0.58%. Institutional ownership is high at 84.28%, reflecting institutional solid confidence.

4. MTN (Vail Resorts): Vail Resorts operates in the consumer discretionary sector and its performance over the last 52 weeks is slightly negative at -0.59%. The stock's trade for today is at $256.18 with a slight increase of 0.43%. Its EPS is positive at $8.23, which indicates that the company is making a profit. Institutional ownership is extremely high at 95.85%, suggesting significant confidence from large institutions. Additionally, it offers a substantial annual dividend yield of 3.22%, making it attractive for income-focused investors.

Analysis of Jobless Claims

The unexpected increase in jobless claims for the June 3, 2023 week exceeded the consensus estimate. This indicates a sudden potential shift in the labor market dynamics that should prompt us to reassess our trading strategies.

1. Labour Market Dynamics: The number of initial jobless claims has spiked to 261K, its highest since late October 2021. This is a significant deviation from the consensus range of 230K to 241K, reflecting potential ease in labor market tightness. This could mean companies are slowing down hiring or laying off employees due to various potential factors such as operational difficulties, economic concerns, or reduced demand.

2. Four-Week Moving Average: The 4-week moving average, a less volatile measure of jobless claims, has also increased to 237.25K, its highest level since the end of April. This trend confirms the initial observation and suggests that the labor market might be undergoing some strain.

3. Continuing Claims & Unemployment Rate: On a positive note, continuing claims have fallen to 1.757 million, and the unemployment rate for insured workers remains stable at 1.2 percent. This might suggest that those previously unemployed are finding work again.

4. Economic Performance: The Econoday Consensus Divergence Index moving into negative territory suggests that the economy is slightly underperforming expectations.

Implications for Trading:

Based on these insights, traders should be cautious about sectors sensitive to labor market trends, such as Consumer Discretionary and Industrials. If unemployment increases, we might see a potential decline in consumer spending, impacting sectors dependent on strong consumer demand.

Furthermore, an easing labor market might prompt the Federal Reserve to consider loosening monetary policy, which could impact interest rate-sensitive sectors such as Financials and Real Estate. Bond prices might rise in this scenario, reducing yields.