Interest Rate Whack

It's not clear what caused a reassessment before the markets opened last Thursday, but it's clear the markets have trouble digesting large one-day increases in long interest rates as it encourages the rotation process of equalizing sector price-to-earnings ratios.

While long interest rates rise, focus on cyclicals that benefit as the global economy reopens along with financials that benefit from improving demand and a steeper interest rate curve.

Also, keep a close eye on the "harmony twins," – the yield on the U.S 10-Year Treasury Note and the U.S. Dollar Index (DXY) & (DX).

Summary

Another 10-Year Treasury Note yield increase shocked the markets again last Thursday as all of the S&P 500 Index sectors declined except for Financials. Gradual increases in long interest rates in small increments without surprise jumps seem acceptable, but apparently unattainable. A doubleheader tops the event schedule this week with both Federal Reserve Chairman Powell and Treasury Secretary scheduled to testify at a Senate hearing on Wednesday.

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Disclaimer: IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter ...

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