Bonds, Gold and Utility Stocks Hurt by Dowgrades

New York (Aug 8)  Friday's strong jobs report for July increased the odds that the Federal Reserve will hike the federal funds rate following the next Federal Open Market Committee meeting on Sept. 21. U.S. treasury yields rose, and gold futures and utility stocks slumped.

The yield on the 30-year U.S. bond rose to 2.31% last week, approaching its July 21 high of 2.36% on fears that the Federal Reserve will raise rates before the end of the year. Just before the June 23 Brexit vote, this yield was as high as 2.563%. Following the United Kingdom's vote to leave the European Union, strong demand for this bond pushed the yield to a record intraday low of 2.089% on July 11. This trading range has been influenced by my annual pivot of 2.265%, a quarterly pivot of 2.150%, and monthly risky level of 2.127% for August.

Investors can trade the U.S. Treasury 30-year bond like a stock using the 20+ Year Treasury Bond ETF (TLT) , which is an exchange-traded fund backed by a basket of U.S. Treasury bonds with maturities of 20 years to 30 years.

Comex gold futures declined to $1,344.4 the Troy ounce on Friday after attempting to set a new high earlier in the week vs. the multiyear high of $1,377.5, set on July 6. Even with a lower open as this week begins, my upside target for 2016 remains $1,639.9. There is near-term risk to the 200-week simple moving average of $1,298.1, and my risky level for August is $1,421.18.

Investors can trade gold like a stock using the SPDR Gold Shares ETF  (GLD) , which is backed by gold bullion.The Dow utility average closed Friday below its key weekly moving average of 698.51, and its chart will shift to negative at the end of this week given another weekly close below this moving average. The downside risk is into the 670.81 to 660.24 range by the end of September.

Investors seeking the safety of dividends can trade the Utilities Select Sector SPDR Fund  (XLU) , which is a basket of 29 utility stocks.

Investors betting that junk bond yields will tighten against U.S. Treasuries should consider the SPDR Barclays High Yield Bond ETF  (JNK) . Keep in mind that the performance of junk bonds correlates to the stock market, not to the bond market. When stocks rise, junk bond yields will compress towards Treasury bonds.

Source: TheStreet