What the Sectors Are Telling Us

In the last sector update, we found that most of the sectors were not in a trending mode, as measured by the Technical Strength measure. With Monday's large drop, Tuesday's snapback, and Wednesday's mixed session, the sectors have moved off their neutral levels:
 

MATERIALS: -200

INDUSTRIAL: -280

CONSUMER DISCRETIONARY: -140

CONSUMER STAPLES: +80

ENERGY: -320

HEALTH CARE: -260

FINANCIAL: +280

TECHNOLOGY: -280

The financial sector has gotten most of the recent press, and that sector has responded to rescue efforts thus far. Materials and energy shares, however, have moved with commodities to near bear market lows. Industrial and technology shares are also reflecting lowered estimates of economic growth. The collapse of bond prices, reflecting increasing concerns over default, along with those falling commodity prices and materials shares, suggest that this is a market increasingly concerned over deflation and a severe contraction in the economy.

Comments

[redst8r:]

I'm a bit confused (well, a bit more than normal anyhow). If bond prices are falling then bond yields must be rising. How do rising yields translate into fear of deflation? Isn't it more likely a fear of economic weakness hand in glove with inflation (the proverbial stagflation scenario)?

2008 Oct 02 10:56 AM

[bigmoney:]

I think he was referring to (corporate) bond prices falling, which is probably a flight to safety (treasuries), which drives down the price of money for government, at the exact time they pass $700 bailout. Good timing.

2008 Oct 03 07:24 PM