US equities opened in negative territory and remained there throughout the day after yesterday retesting and failing the technical uptrend line that began on April 18. Yield-sensitive securities were particularly weak. The Dow Jones Dividend Select Index, heavily biased toward utilities, was down 1.5% and the Dow Jones REIT Index was down 1.9%. The REIT index has now fallen 7% in the past five trading days, which is the equivalent of more than two years of dividend payments. Utilities were also hit hard, but rebounded by the close. Also in the REIT space, mortgage REITs dropped up to 5% in the opening moments, but were able to climb back into positive territory by the closing bell. This sector has been particularly hard-hit of late.
Activity in the Treasury market was incredibly high today with Treasury futures volumes breaking records. The Treasury auctioned $35 billion of 5-year notes at a high yield of 1.045%, better than the pre-auction levels. Direct bidders posted the third highest percentage of the auction while primary dealers had the lowest on record. Today was one of the very few days this month that Treasuries have performed positively so we'll have to see if the positive momentum carries over into tomorrow. Activity in credit markets was highly negative with yields on high-yield bonds rising by more than nine basis points. Closed-end bond funds were also hit hard, specifically those that carry higher leverage.
There was no major economic data in the US today. The weekly Mortgage Brokers Association diffusion index fell 8.8% week-over-week, largely due to a continued contraction in refinancing activity. Refinancing activity readings have fallen 8.1%, 11.7%, and 12.3% over the last three weeks. This is largely in part due to the rise in the 30-year mortgage rate from 3.4% to the current 3.88% rate, according to Bankrate.com.
(NASDAQ:SLM) announced this morning that it was splitting into two companies; one will pursue public student loan servicing while the other will pursue consumer banking, or private label student loan origination. Stockholders will receive common shares to both on a tax-free basis. Sallie Mae shares remained in positive territory throughout the day, finishing up more than 2%.
Tomorrow's Financial Outlook
Tomorrow the second estimate of 1Q US GDP will be released with no change expected from the first estimate last month. Annual GDP growth rose 1.8% in the 1Q and 2.5% on an annualized quarterly basis. The other releases will be the weekly jobless claims, which is expected to remain unchanged from last week at 340,000 and the 4-week moving average of 339,500. Pending home sales are forecast to rise 9.4% YoY and 1.5% MoM.
In global economic news, Switzerland will release GDP figures from the 1Q and the eurozone will release consumer confidence figures from May. Year-over-year growth in Swiss GDP is expected to grow 1.0%, up from 1.4% the quarter prior.
Notable earnings report includes Joy Global
(NASDAQ:COST), Lions Gate
(NYSE:LGF), Palo Alto Networks
(NYSE:PANW), and Splunk
No positions in stocks mentioned.
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