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High-Yield Securities In and Out of the Dow Jones Keep Pace

It looks like the Federal Reserve rate hike news is trailing the Dow Jones


On Friday, the Dow Jones Industrial Average fell slightly as investors pounced on bonds and dividend-paying stocks.

The Dow Jones Industrial Average fell 0.1%, as did the S&P 500. The Nasdaq broke even and the Russell 2000 gained 0.4%. The leading sectors on Friday were utilities (+0.6%), telecom services (+0.6%) and materials (+0.5%). The benchmark 10-year Treasury note’s yield fell to 2.5%.

Friday’s volume was higher due to “quadruple witching,” which is the expiration of almost every important class of options. This can cause unusually high volume and volatility but had little impact on Friday’s final numbers.

Several economic reports were published on Friday, but the result was that total industrial production is weak, up just 0.3% year-over-year. But the Leading Indicators for February were up 0.6%, and the index is at a decade high. The conclusion is that this year, economic growth should improve.

At the close, the Dow Jones Industrial Average fell 20 points to 20,915, the S&P 500 lost 3 at 2,378, the Nasdaq was flat at 5,901 and the Russell 2000 gained 5 points to close at 1,392. The NYSE’s primary exchange traded 2.3 billion shares with total volume of over 5 billion shares, and the Nasdaq crossed 3 billion shares. On the Big Board, advancers outpaced decliners by 1.5-to-1, and on the Nasdaq, advancers led by 1.4-to-1. Blocks on the NYSE increased to 8,966, up from Thursday’s 6,342. The increase was due primarily because of the major options expiration day (quadruple witching).

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High-Yield Securities in the Dow Jones Industrial Average Keep Pace

Following its high in July 2016, the Dow Jones Utility Average fell over 100 points or 14%-plus. It bottomed in November with hardly a whimper, but began to accumulate buyers in December, the start of what we can now clearly see is a bullish “V” formation. On Friday, buyers chased the attractive yields of this sector, triggering a “Golden Cross” (long-term bullish signal) and setting the stage for an attack on the July 2016 high at over 723.

Conclusion: The Federal Reserve’s recent decision to gradually raise rates is not leading the market, but trailing it. The bond markets show similar accumulation. This upward move by higher-yielding investments is a prediction that barring an unforeseen event, the Fed will continue to raise rates.

Thus, stock buyers should focus on securities whose management plans to increase dividends and stock buy-back plans, like our Trade of the Day, Intel Corporation (NASDAQ:INTC). It is those stocks that, along with a strong growth record, will most likely lead the market this year.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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