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Afternoon Market Update April 3rd

Posted by Larry Doyle on April 3, 2009 4:01 PM |

On the heels of the G-20 and the April Unemployment Report, there are some interesting crosscurrents playing out in the market. The price action strikes me as inconsistent. Given some of these inconsistencies, I believe the price action actually reflects the squaring of positions of many short term traders who are being tested.

Equities: despite an Unemployment Report that is in line with expectations, this report was weaker than expectations. That weakness is reflected in the revisions to January’s report and the decline in the hourly workweek. Despite the ongoing economic weakness, stocks are slightly higher on the day and are closing out the 4th strong week in a row.

Bonds: typically economic weakness would indicate a decline in interest rates and a move higher in bonds. Market activity is reflecting the exact opposite. 10 year U.S. government bonds are significantly lower in price with the rate on these bonds back up to 2.90%, which is higher by 12 basis points on the day.

Are bonds down because the market believes the economy is turning? If that is the case, I would expect inflation to pick up. Gold, typically an inflation hedge, is actually down by 2% on the day and back below $900/oz.

If gold is down, are other commodities down as well? Not copper which is higher by 4% on the day. Is that move by copper an indication of the economy picking up? If so, then inflation will be rearing its ugly head and the decline in gold will be temporary.

Within industry groups, hotel stocks and REITs (Real Estate Investment Trusts) are the biggest gainers. Granted a number of these stocks have been decimated so they are trading at very low levels, but I still find it interesting that they are bouncing.

What do I take away from these crosscurrents? On light volume, it appears that a number of positions are being tested. Sectors that have been strongly recommended (government bonds and gold) are down significantly. Sectors that have been underweighted (hotels, REITs, copper) are up significantly.

What do I make of it? I think people are squaring risk positions and will reassess next week.

LD






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