A strong dollar crushes stocks & commodities

Markets wanted to fly after the jobs report, but could not cope with sudden strength in the dollar. Dow shot out of the gate with a 150 gain bringing it above 9.5K, another high for 2009. Midday selling took away that gain in just 1 hour. Dow drifted near break even for the rest of the day (shown in the BigCharts widget on the right). However there was buying at the close, limiting damage. Dow ended up 22, advancers ahead of decliners by almost 2-1 & NAZ gained 21 for a very good day. The Financial Index ended with a good gain while it continues to drift along above 190.

S&P 500 FINANCIALS INDEX

Value 196.22

Change 3.30

% Change 1.7%

Th Alerian MLP Index dropped .39, still in the 266s. Its longer term chart shows MLPs have flattened in the last 2 months. But the Dow Jones REIT Index did well, up 5.27 (maybe helped by thoughts of the stronger dollar) just 2 below its 2009 high. Junk bond funds were generally a little higher. Treasuries had a very rough day, the yield on the 10-year Treasury bond rose 10 basis points to 3.48%. While above recent yields, it's still near the 3½% level it has been been close to for much of this year.


Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD





The strong dollar made for a rough day in commodities. Oil lost its early gains & is getting close to the 75 floor that has held recently. Gold had one of its biggest drops in history.

CLF10.NYM

..Crude Oil Jan 10

..75.59

.. 0.87 ......(1.1%)

GCZ09.CMX

..Gold Dec 09..

1,155.00

.. 62.40 ......(5.1%)

The strength in the dollar was too much for stocks & commodities. This was the biggest rally (1½% - shown below) for the dollar in 6 months. An unexpected drop in the unemployment rate triggered bets the Federal Reserve will lift borrowing costs. Gold slid the most in a year & Treasuries tumbled badly. Dollar weakened going into the close, but the market gyrations will be remembered.


DOLLAR INDEX SPOT

Value 75.92

Change 1.12

% Change 1.5%

Dollar Index - 1 year





Fundamentals have not changed. The unemployment rate continues at very high levels. There is no quick fix to solve this problem. As long as it remains high & inflation is quiet, the FED will be forced to keep interest rates at low levels. The sell-off is a vivid reminder about the unwinding process the FED will have to deal with & its painful consequences. Seeming, that will not begin until late in 2010 (at the earliest) if the economy can recover & reduce unemployment significantly below present levels.


Dow Jones Industrials --- YTD