Banks, Rails Climb as Rates Move Higher

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Banks and railroads continue to advance as investors seem to focus on a strong U.S. economy.

Banks and financials are the best-performing major sector in the S&P 500. The move comes after strong earnings from Bank of America (BAC) and JPMorgan Chase (JPM). Perhaps even more important, the selloff in bonds is lifting interest rates and helping steepen the yield curve. That’s a handy thing when you borrow money in the short-term and loan it out over longer periods.

The DJ US Railroads Index ($DJUSRR) rolled to a new all-time high today. CSX (CSX) triggered the breakout on strong earnings, and has been followed by Norfolk Southern (NSC). Buyers have also turned to suppliers like Trinity Industries (TRN) and Greenbrier (GBX) as volumes surge to their highest levels in over three years.

Interested in the heavy flow of tech earnings and economic news? Click here for the Market Action calendar.

Remember, both groups tend to benefit from a stronger U.S. economy. Traders might want to keep that in mind with a strong reading for second-quarter domestic product expected on Friday morning. The small-cap focused iShares Russell 2000 (IWM) often moves in a similar direction.

But there’s a flip side to the coin: Higher rates and quicker growth often hurts sentiment toward utilities and consumer staples. Both of those sectors are lagging today. Are the SPDR Utilities ETF (XLU) and SPDR Consumer Staples ETF (XLP) starting to roll over after a bear-market rally in May and June?

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. We just wanted to highlight how some new catalysts are coming into focus as a busy week gets underway.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.