In our “Morning Comment” this morning, we said that the employment report probably wouldn’t have much impact on the markets…unless it came-in at a much different level than expected. Well, it DID come-in at a level that was much different than expected (much better than expected)…and thus it is indeed having an outsized impact on several different markets. Not only are the stock futures rising…but so are interest rates and the dollar.
Whether the employment report has an impact on the broad market past today (when the trade issue becomes front & center once again), the rise in interest rates should have a key impact on the bank stocks going forward. The move in rates is important…because even though the KBE bank ETF has out-performed since the August lows, it has not yet broken out of the sideways range it has been in since the very beginning of the year. Yes, it looked like it was going to breakout of that range in early November, but the move above the top-end of its 10-month range was only a slight one…and it has been “riding” the top line of that range for several weeks. Therefore, if this move in the bond market today hold…and the KBE can break above its November highs of $46.80 in any meaningful way…it should confirm that the outperformance for this group is going to accelerate.
This will be bullish for the major names, but we’d also note that some of the stocks that have been lagging before the recent rally in the group could have more upside potential. Don’t get us wrong, we’re not saying that investors should avoid stocks like JPM if the KBE does indeed confirm its breakout. We’re just saying that others should also rally nicely…and might even outperform.
For example ...