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Banks and Brokers Benefit from Strong Jobs Report

David Becker
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www.iforex.com
Banks and Brokers Benefit from Strong Jobs Report

A strong jobs report this past Friday was the catalyst that pushed interest rates higher across the yield curve. The 10-Year Treasury note yield jumped to the highest close in a month. Short-term rates jumped even more. The 2-Year Treasury Yield jumped to a monthly high as well. That big jump in rates helped banks and brokers have a strong day, but caused heavy selling in rate-sensitive groups like REITs and utilities. Higher rates and a stronger dollar also hurt gold. The stock market ended the day on the downside after trading higher earlier in the day.

The U.S. nonfarm payrolls increased 257,000 in January versus expectations of a rise of 230,000 jobs and a revised increase of 329,000 in December. The upward revisions were a function of the annual benchmarking. The 3-month average payroll gain is 336,000, the largest since 1997. The unemployment rate rose to 5.7% after falling to 5.6% in December. Average hourly earnings rebounded to 0.5% after the 0.2% December decline.

A big jump in banks and brokers made financials Friday’s strongest sector. The KBW Bank SPDR (KBE) jumped above its moving average lines to reach the highest level in a month. Its relative strength ratio has turned up as well. Banks generally benefit from rising interest rates. Momentum on the KBE turned positive. The MACD (moving average convergence divergence index recently generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. Brokers also had a strong day.

The DJ Broker Dealers iShares (IAI) climbed above its 50-day, and 200-day moving averages as well. Rate sensitive groups that follow the bond market fell sharply. Momentum on the KBE has also turned positive.

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