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Stocks Down As Yields Surge

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STOCKS DOWN AS YIELDS SURGE

Worries that rising interest rates could put a damper on consumer and business spending dragged down both the Dow and S&P on Wednesday.

The market losses accelerated after a 10-year Treasury note auction sparked a sell-off in bonds, pushing yields briefly above 4 percent for the first time since October. However, stocks recovered a bit after the bond market rebounded, with the yield at 3.9455 percent.

Investors are worried that higher yields, which act as a benchmark for many lending rates, could handcuff an economic recovery. Interest rate-sensitive stocks, such as homebuilders and financials, were among the primary laggards.

How should you be trading?

Strategy Session with the Fast Money Traders

There’s a huge onslaught of paper coming onto the market, explains Karen Finerman. The amount of debt being issued as well as the employment numbers are going to be key things to watch going forward. Considering the market didn’t rally last week in the face of better than expected jobs numbers, I can’t imagine how it rallies now on a less than stellar auction.

And to play my thesis that the too much debt coming onto the market is going to trigger serious inflation; you can either go longTBT or short TLT.

No doubt that the auctions will bring the rally to a screaming halt, bristles Jeff Macke. Higher interest rates and higher energy will put the kibosh on everything.

There's just are a tremendous amount of Treasuries coming onto the market, echoes Joe Terranova. It makes me bearish on stocks -- at least short-term. I'm long the SDS .

If there’s a takeaway from all of this, I think that it’s a trader’s market, muses Pete Najarian. I still think there are opportunities but you have to be nimble.

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OIL HITS 7-MONTH HIGH

U.S. crude oil futures rose to their highest level in seven months lifting energy companies such as ExxonMobil on Wednesday.

While gains in oil and other commodities had supported broad market rallies in the past, stock investors are no longer excited about higher oil -- believing crude has now reached a level where it could dent an economic recovery.

How should you trade?

I’m an oil bull, explains Joe Terranova, because I wouldn’t fight the trend. As the market continues to move higher I see no reason to get out. As far as I’m concerned oil is a paper asset that big investors like as a hedge again against inflation. But I’m also concerned that prices at the pump will sideline the economic recovery.

I agree that we’ll likely see strong headwinds for consumers, adds Karen Fineran. My trade is long Wal-Mart and short the XRT.

In the space, keep an eye on services names, adds Pete Najarian. Options action in BJ Services suggests the stock could go higher.

I’m long the USO , reveals Jeff Macke.

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ONE, TWO PUNCH FOR CONSUMERS STOCKS

Consumer stocks led the market lower on Wednesday with speculation that higher interest rates and higher prices at the pump could drag down spending.

However, the bulls were cheering somewhat optimistic news out of Home Depot. The retailer said the worst of the U.S. housing correction had passed. As a result the company’s earnings could be flat this year -- rather than falling as it previously forecast.

I’ve had a tortured relationship with Home Depot, but when there’s a snap back I think they benefit, muses Karen Finerman.

The price action in Home Depot looked horrible to me, counters Joe Terranova.

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DESPITE TARP PAYBACK, BANKS FALL

Despite approval to repay TARP, shares of big banks closed lower; possibly dragged down by comments made by Treasury Secretary Geithner as he appointed a new pay czar. The newly created post will have the power to reject compensation plans for top employees at companies receiving "exceptional" government aid, such as Bank of America , Citigroup and insurer AIG .

What’s the trade?

I think the trade in financials is over, muses Joe Terranova. And I don’t think the market goes a lot higher until we see leadership return to the sector.

Meanwhile, a new report from Deutsche shows that short interest in Bank of America and BB&T are declining, explains Melissa Lee.

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BULL MARKET OR BS?

With earnings season only a few weeks away, will the next spate of quarterly reports be the catalyst that sends this market lower. According to Christopher Zook of Caz Investments it’s a distinct possibility.

He tells Fast Money the market seems to be up against serious resistance. Zook thinks the market will fail and pullback and it could get ugly.

How does he suggest trading it? Find out! Watch the video now!





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Trader disclosure: On June 10th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Is Long (USO), (AGU), (SKF); Najarian Is Long (AAPL) Call Spread; Najarian is Long (FCX) Calls And Puts; Najarian Is Long (JPM), Short (JPM) Calls; Najarian Is Long (PALM) Call Spread; Finerman Is Long (NOK); Finerman Is Short (USO); Terranova Is Long (RIMM) And Short (RIMM) Sept. Calls; Terranova Is Long (MS) And Short (MS) July Calls; Terranova Is Short (XOM) Call Spread; Terranova Is Short (FCX) And Short (FCX) Puts

Terranova Works For (VRTS); Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV); Virtus Investment Partners Owns More Than 1% Of (ABD), (CAL), (CLB), (DLR), (EPR), (EXR), (IGE), (MEE), (DBC), (DBV), (DBA), (SKT), (UA), (WBMD); Virtus Investment Partners Owns More Than 1% Of St Mary Land & Exploration Co; Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights

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