Markets stage late day rally

Dow tried to break thru 8K all day remaining in the 7900s for much of the day. However buying in the last hour took it over 8K. Dow closed up 109, advancers ahead of decliners 2-1 (could have been more impressive) while NAZ rose 1. The daily charts are shown in the Bigcharts widget in the right sidebar. Banks had a good day, benefiting from the late day rally.

S&P 500 FINANCIALS INDEX

Value 146.36

Change 7.71

% Change 5.6%

The Alerian MLP Index gave up yesterday's gains, falling .70 to 201.40. But REITs had a good day, the REIT Index was up 9.78 to 122.38. Oil was up only pennies.

Bloomberg pointed out that junk bond funds have rebounded off their lows last year. According to Merrill Lynch index data, the spread over US Treasuries narrowed 31 basis points last week to "only" 1585 basis points. This spread is also 301 basis less than on Mar 9. The thinner spread allowed 2 companies to sell high yield bonds. Yields on actively traded junk bonds fell 458 points to 14.8% in the same time span, lowest level since Sep 25. In addition, junk bond mutual funds experienced inflows for the last 4 weeks. The article is bullish on junk bonds, &, by extension, the US economy.

I like high yield debt because of their extraordinary yields but am more cautious. The bond rally is history, they just went along with the stocks. Junk bonds are really stocks with high yields. What they failed to point out is that the junk bond market has a rough patch ahead. There will be company failures. General Motors (GM) & Chrysler, just 2 names, are sitting on ticking time bombs & their failure would take more companies with them.

The graph below of a high yield bond ETF tells a slightly different story which I subscribe to. This index was in the high 40s last year. The plunging portion began in Sep around the time of the Lehman collapse. The rally over the last month resulted from higher stock markets. Even with its 2% gain today to 31+, it's still far from the high in the 40s last year because the economy is not out of the woods. Plenty of risk remains.

Junk-Bond Spreads Fall to Lowest Level in Six Months


Barclays Cap Hi Yld Bond ETF - 6 months




The late day rally was led by consumer product makers & industrial companies. Procter & Gamble (PG), a Dow stock, up 1½, was among the strong gainers. With the good finish, Dow remains just over 8K at 8029. It sill has a lot of convincing to do before investors will consider this move significant.