[Chart courtesy of MarketWatch.com]
The U.S. equity markets extended their winning ways for a third-straight session, with benchmark indexes staging the longest rally since July, as some favorable employment reports and a record high reading in services sector activity suggested that investors may be expecting the Federal Reserve to begin tapering its asset purchases later this month.
Meanwhile, gold sank almost 2 percent to two-week lows after the data. Although stocks finished in positive territory, their gains were capped by Treasury yields hitting their highest levels since July 2011. Elsewhere, the likelihood of a military strike on Syria continued to linger on traders’ minds.
Interest rates have been on the rise throughout the quarter, and that has pressured the most rate-sensitive sectors. Consumer staples (-0.1%), telecom services (-0.8%), and utilities (-0.4%) finished at the bottom of today’s leaderboard, which widened their third quarter losses.
Meanwhile, the last countercyclical group, health care, rose 0.2% to maintain its quarter-to-date gain of 5.1%. The sector has been able to outperform other defensive groups thanks to big gains in biotechnology. The iShares Nasdaq Biotechnology ETF is higher by 16.1% this quarter.
Cyclical sectors were responsible for today’s advance as energy (+0.3%), industrials (+0.3%), and materials (+0.3%) ended in the lead. Notably, the industrial sector received support from transportation companies as the Dow Jones Transportation Average rose 0.6%.
Similar to yesterday, financials led early, but surrendered their top spot during afternoon action. Most majors finished ahead of the broader market while real estate investment trusts were pressured by the elevated rates. The Vanguard REIT ETF lost 1.1%.
Data today indicated fewer Americans than forecast filed applications for unemployment benefits last week. Moreover, the four-week moving average, considered a smoother look at the trend in claims, fell, while continuing claims dropped, south of the forecast of economists.
Moreover, final 2Q nonfarm productivity rose 2.3% on an annualized basis, from the 0.9% increase posted in the preliminary report and the 1.7% drop seen in the 1Q. Finally, factory orders declined, but better than forecasted.
Today’s flurry of stronger-than-forecasted economic data likely fostered expectations of some sort of tapering of asset purchases by the Fed at its meeting later this month. Although Fed tapering is on the market’s mind, good news is bad for the market at this stage in the cycle.
Our Trend Tracking Indexes (TTIs) slipped slightly, despite the markets overall positive tone due to bonds losing sharply as interest rates rose. The Domestic TTI ended the day at +1.15% while the International TTI closed at +4.21%.