Markets drift lower on earnings worries

Dow sank at the start & remained down 60 for most of the day. Buyers came in at the end to reduce the loss to 36. Decliners were ahead of advancers by 20% while NAZ gained 3. Volume remained light. Banks saw their share of selling as the Financial Index could not hold the important 150 level.


S&P 500 FINANCIALS INDEX

Value 149.33

Change -1.93

% Change -1.3%

MLPs had another great day while the rest of the market sank. Last month MLPs had a major setback, dropping 20 points in what has been one its best years ever. But buyers brought it back to 225.90, within 7 points of its 233 high in early Jun. The Dow Jones REIT Index slipped pennies while bonds rose. Treasuries had a very big rally, the yield on the 10 year Treasury bond fell 12 basis points back to 3.30% (down sharply from the 4% peak last month). The rally in Treasuries bled over to junk bonds despite warnings from Pimco (see below).


Alerian MLP Index --- YTD




10-Year Treasury yield Index - 3 months





The oil rallied, cutting its loss to 54¢. But it remains under 60, an important threshold that did not hold.

CLQ09.NYM

..Crude Oil Aug 09

..59.87

.. 0.54 ......(0.9%)

Pimco, the largest manager of bond funds recommended selling junk bonds while their prices are high. Modest economic growth will hurt high yield, high risk debt. Fitch predicted the the default rate on junk bonds may reach 18% by year end, double the rate from last month. The yield spread of junk bond yields over the yield for the 10 year Treasury has narrowed to about 11%, not enough to cover added risks going forward. Pimco said that slow economic growth, will turn some of the green shoots to weeds.

Pimco’s Kiesel Says Sell Junk Debt as Green Shoots Become Weeds


Dow continues to waffle around the low of its trading range for the last 3 months. Holding the 8K line of resistance will be very important.

Dow Jones Industrials --- 3 months