The major averages are a “mixed bag” this morning, with NASDAQ down a bit on news that Steve Jobs will take another leave of absence from Apple. The S&P was flat this morning, while European stocks were higher, and Asian stocks were up based in the global growth outlook and earnings optimism. More peripheral European debt auctions are coming up this week, which along with a weak dollar, is providing some support for gold this morning. Oil is lower even though the IEA raised its demand forecast.
Looking back to Friday, banks led the S&P 500 to a seventh straight positive week. A bank rally following earnings from JPMorgan Chase led the major averages higher Friday ahead of the three-day holiday weekend. Technology and Energy also enjoyed strong sessions, with Technology getting a lift from Intel’s upbeat outlook and Energy on higher natural gas prices and strength in oil & gas services stocks. Economic data for last week was mixed, with a slight retail sales shortfall, lower consumer confidence and solid increases in industrial production. China’s increase in bank reserve requirements weighed on Materials, although crude and copper rose anyway.
Around the Fi Plan Partners offices this morning, we were discussing four items that we thought would be of particular interest to our readers:
Credit markets improved last week. Both investment-grade and high-yield bonds continued to improve relative to U.S. Treasuries. The improvement was more pronounced among high-yield bonds which are up 1.3% year-to-date as measured by the Barclay’s High Yield Bond Index. Investment-grade and high-yield spreads narrowed to 1.6% and 5.5%, respectively, relative to Treasuries.
Municipal bond weakness is not credit related. If a wave of defaults were coming, short-term municipal yields would be very high. That is not the case, however, with the vast majority of 1-year municipal bonds yielding less than 1%. Further, the municipal credit default swap index declined last week, indicating the cost to insure against default decreased.
Treasury prices were unchanged to slightly higher last week. The stabilization was positive given the good results from government debt auctions in Portugal, Spain and Italy last week. Strength in auctions did not lead to removal of any safe haven premium in Treasuries. The stabilization, now in its fourth week, suggests that the current level of Treasury yields may have adequately factored in improved growth prospects. Recent trading has been defined by a yield range of 3.25% to 3.56% on the 10-year Treasury.
This is a big week of earnings news. This week is the first major week of earnings, with 49 S&P 500 companies scheduled to report. Citigroup’s results this morning were short of analysts’ estimates. IBM results are due out after tonight’s close.
As always, email me here with your questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
Note: Indices such as the S & P 500 may not be invested into directly. The market for all investments is subject to fluctuation.