Editor's Note: This article was originally published in John Murphy's Market Message on Friday, May 31st at 11:14am ET.
Energy stocks are one of the weakest parts of the market. So are bank stocks. There may be a reason why. The black bars in Chart 7 shows the Energy SPDR (XLE) trading at the lowest level in five months. The green bars show the KBW Bank Index trading below both moving average lines, and nearing a test of its March low. There may be a reason why both groups have been doing worse than the rest of the market over the last month. And that has to do with low inflation and the price of oil. The price of crude oil has fallen nearly -20% since the end of April. Which is the main reason that energy stocks have been weak. Falling oil prices also weaken the inflation outlook, which is one of the factors pulling bond yields lower. Falling bond yields, in turn, are hurting bank stocks.
Chart 7
