Dreary down month for Dow

The January decline for the Dow (graph 1) is sending all the wrong signals for the remaining 11 months of the year, just as it did last year. However, the MLPs managed a decent gain shown in the 2nd graph. At today's value, the index still yields a whopping 10½%, 800 basis points above the Treasury bond yield. Most MLPs have just reported earnings, distributions & guidance with only limited distribution cuts. That brought out the buyers.

Investors are attracted to high yields today. Barclays Capital High Yield Bond ETF is an indicator of the junk bond market. Their modest decline (shown in the 3rd graph) understates the strength of junk bond funds. Typically they rose 5-10% in Jan vs the decline in the Dow & yields are still around 15-20%. The 4th graph shows the weak group, REITs. The Dow Jones REIT Index decline matched the Dow's, mirroring worries about the economy in 2009 & recent awareness, that, to conserve cash (not necessarily from a point of major weakness), they may substitute stock divs for some or all of their regular divs. If they begin this trend, more companies outside the REIT industry may go along which will not be taken well by the markets.


Dow Jones Industrials --- 1 month




DJI vs Alerian MLP Index -- 1 month




DJI vs Barclays Capital High Yield Bond ETF - 1 month




DJI vs Dow Jones REIT Index - 1 month




Next week will bring senate hearings on the whopper stimulus package along with more earnings. So far the markets have taken the string of negative news stories relatively well. But now the Dow is starting at 8001 with what looks to be a major test of the 8K floor.