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The Great Rotation Out of Defensive Stocks and Into Cyclicals Continues


Today's financial recap and tomorrow's financial outlook.

Particularly after Friday's fireworks, markets needed some time to digest the new jobs data and the burst through the upper band of technical resistance. Japanese markets remained closed, and markets in the UK were also closed, leading to a thin trading day for Treasuries.

The key takeaway from today was that it was the second day of sector rotation. This year, the utilities, consumer staples, and health care sectors have been leading the stock market due to their higher dividend yield. Over the past two days, this has changed. The utilities sector fell 1.19% today, consumer staples were down 0.71%, and health care was down 0.46%, with the S&P 500 up a few points. Leading sectors for the day were financials (up 1.07%) and energy (up 0.61%).

Treasuries continued their sell-off today with the 10-year yield falling 3 basis points to 1.7675%. The Treasury will auction $24 billion of 10-year notes on Wednesday and $16 billion of 30-year bonds on Thursday.

Mortgage insurer MBIA (NYSE:MBI) has settled its lawsuit with Bank of America (NYSE:BAC); this ongoing suit has lasted well over two years. The suit dealt with faulty mortgages issued throughout 2005 and 2007. MBIA and Bank of America settled the deal in exchange for $1.6 billion in cash and a $500 million line of credit to MBIA for a dismissal of the mortgage claims. Bank of America will also receive warrants for a 5% stake in MBIA as part of the deal. MBIA's stake was up 45% during the day and Bank of America was up almost 5%, inline with most of the other money center banks.

Tomorrow's Financial Outlook

Tomorrow will be the busiest day of the week for economic data and earnings. In the morning, the IBD/TIPP economic optimism survey will be released. Analysts are expecting the survey to show a bit more confidence at a reading of 47.0, up from 46.2 the month prior. In the afternoon, March consumer credit will be released. Estimates call for a $16 billion rise in March, down from an $18.139 billion increase in February. In the prior report, much of the real increase came from federal government-backed credit and non-revolving financial credit.

Globally, Japanese markets will be open for the first day since last Thursday, and we will see their reaction to the better-than-expected jobs data from Friday. Additionally, London markets will be open after being closed today. The Reserve Bank of Australia will release its monthly monetary policy decision. In March, the Australian unemployment rate rose to 5.6% from 5.4% so the central bank will be under more pressure to continue lowering its main policy rate from the record low rate of 3%. Over 75% of economists expect the central bank to keep its policy on hold.

The last bit of earnings will be tomorrow with 43 companies reporting in the US. Over 80% of S&P 500 companies have already reported and 73% have beat earnings. Out of that 73%, the average surprise rate over estimates is 5.38%. Notable reports tomorrow include Walt Disney (NYSE:DIS), Marathon Oil (NYSE:MRO), DIRECTV (NASDAQ:DTV), Electronic Arts (NASDAQ:EA), Whole Foods Markets (NASDAQ:WFM), and Molson Coors (NYSE:TAP).

Twitter: @Minyanville

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