A shocker this morning: a new study published Tuesday from the WSJ analyzing the results of the European banking stress tests found that “some banks didn't provide as comprehensive a picture of their government-debt holdings as regulators claimed.” (!) (Sorry it’s hard to resist sarcasm on this one). The European stress tests were designed from inception to gloss over the problems; everyone knew it. Today Mr. Market is waxing concerned again, with bank shares leading declines in stock markets around the world.
Indices are rolling over still under their 200-day moving averages, and long bond yields are giving back some of the rapid rebound made last week. This next chart shows a strong correlation between the semi-conductor Index price (SOX) and the 10-year Treasury yield (TNX). Both bottomed before the overall stock market in Nov/Dec of 2009, and both peaked most recently in April 2010 and have been heading down since.
As we have noted in previous cycles, the semi-conductor sector typically has led the stock market. A comparison of the SOX (Top) and the S&P (SPX below) in this next chart makes the point:
So far semis are down just over 19% since April. The S&P 500 on the other hand is so far off just a little over 9%…
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Going back some years, I had a phrase:
The market is going like Intel.
Apparently it's true.
By the way, Intel guided lower for the second half.