Last Friday the Federal Reserve released the industrial production numbers for May, which showed stagnant growth with zero growth over April's levels and capacity utilization falling two-tenths of a percent to 81.3%.
One of the wonderful attributes of technical analysis is the ability to go back in history to view how prices performed and visually compare their traits with events that are happening today. The past performance of the financial market is never an indicator of future results, but we can learn from the past to avoid repeating mistakes.
The bond sell-off that began last month with the 10-year UST rising from a low of 4.602% on May 11th to a high of 5.316% yesterday may have reached a short-term top with the RSI near 90, the highest level seen in more than 20 years.
Last week I covered the top five performing S&P sectors in terms of year-to-date (YTD) performance, as of May 2nd. Presented this week are the laggards, and for an explanation of the charts listed below and their construction please see the opening paragraphs to last week's WrapUp (05/02/07).
Sector analysis was done by looking at relative twelve month performance of each sector to the S&P 500 (a measure of overbought or oversold) and sector valuations. Twelve month relative performance for each sector relative to the S&P 500 is shown below.
Last week's WrapUp looked at the corporate sector as the possible pillar underpinning the U.S. economy. The data presented showed businesses retiring stock and slowing capital investment domestically, while some corporations are actually increasing foreign capital investment.
With GDP slowing and housing working through a recession, who is carrying the economy? Is it the corporate sector as many have forecasted, taking the baton from the consumer with pundits touting that corporate balance sheets are strong?
Last week I looked at housing and its importance as a major contributing factor in GDP in the current economic expansion, which has turned from a tailwind into a headwind as residential fixed investment has contracted.
Housing was the major component that helped fuel the economic expansion after the last recession. As such periodic analysis of housing's decline will shed light into whether a hard or soft landing is in store along with a look at consumer expenditures.
The infusion of ample liquidity since the start of the decade to bring us out of the 2001 recession, cushion the economy and markets after the September 11th attack, and the continuation of the Yen Carry trade have put a bid under financial markets and have reduced volatility to an extreme.