EarningsBeats.com Digest for August 12, 2020
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As Goes The Treasury Yield, So Goes Transportation Stocks
When our economy begins to accelerate or when economic improvement is expected, investors tend to flee the bond market, which sends treasury yields higher. That economic improvement also tends to drive transportation stocks ($TRAN) higher. The following chart is a 5-year daily chart of the 10 year treasury yield ($TNX), with the correlation coefficient in the panel below it. While there isn't always positive correlation, it's fairly obvious
that the two (TNX and TRAN) tend to move together much more often than they move opposite:
The blue-shaded area marks positive correlation of more than 0.50, while the red-shaded area marks negative, or inverse, correlation of less than -0.50. That hopefully helps to illustrate the intermarket relationship here. So while it doesn't guarantee us that transportation stocks will go higher just because yields rise, it does give us that historical probability. Given this background, it's worth noting that the TNX rose 8 basis points
yesterday to 0.66% and is up another 2 basis points today to 0.68%. This sudden surge higher supports the recent breakout in transports and increases the likelihood of a further rise in transports.
Transports were one of five charts that I provided in a guest appearance on StockCharts TV's "Your Daily 5" on Monday. To view this video, CLICK HERE.
Happy trading!
Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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