Wednesday, January 5, 2011

Optimism from jobs data lifts markets

Dow gained 31 to a new 27 month high, advancers ahead of decliners 4-3 & NAZ was up a more impressive 20.  Bank stocks were strong, taking the Financial Index to an 8 month high. The index is up almost 30 since the beginning of Dec, leading the advance for all markets.   


Value221.80One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change  2.61  (1.2%)

The Alerian MLP Index was up a fraction to the 364s, remaining just under its record highs of the last 2 months, & the REIT index rose 1+ to 225.  Junk bond funds were a little lower although demand continues strong for new issues (see below).  Treasury rates climbed to the highest level in a week on the ADP employment report.  The yield on the 10 year Treasury bond rose a massive 14 basis points to 3.48%, near the interim highs reached 3 weeks ago.

Treasury yields:

U.S. 3-month
U.S. 2-year
U.S. 10-year

Alerian MLP Index   ---   1 year

Dow Jones REIT Index   ---   1 year

10-Year Treasury Yield Index   ---   1 year

Oil rose after reports showed that US service industries expanded & companies added workers in Dec, signaling that fuel demand may increase in the US.  Gold fell, capping the biggest 2 day drop in 11 months, on speculation that an economic recovery will curb demand for the metal as a haven.

CLG11.NYM...Crude Oil Feb 11...90.42 ...Up 1.04 (1.2%)

GCF11.CMX...Gold Jan 11......1,371.50 ...Down 7.00  (0.5%)

** Gold Super Cycle **  

Investors are accepting the lowest relative yields on speculative-grade debt in more than 3 years with more new issues from borrowers amid signs the economy is improving.  Spreads on junk bonds declined 5 basis points yesterday to 527 basis points.  This reinforces the old addage the junk bonds are stocks with high yields & in a rising stock market, demand continues strong for high risk debt.  Spreads have declined from a record 21.8% points in Dec 2008 as the default rate for US junk bonds fell for a 12th consecutive month in Nov to 3.35%, according to Standard & Poor’s. Relative yields on junk debt, rated below Baa3 by Moody’s Investors Service & BBB- by S&P, are the lowest since reaching 525 basis points in Nov 2007 according to Bank of America Merrill Lynch index data.  High-yield debt, which advanced 15.2% in 2010 after surging 57.5% in 2009, is forecast to beat investment grade this year as the economic recovery gains momentum & as rising Treasury yields temper the performance of the highest quality credit. 

High-Yield Debt Spreads Narrow to the Least Since November 2007

AT&T (T) plans to sell 20 phones with high-speed Web surfing this year including 12 phones running Google (GOOG) software in its biggest push yet to lessen its dependence on the Apple (AAPL) iPhone. ATT said, ahead of the Consumer Electronics Show (CES), that the 20-phone lineup would include Google Android devices from Motorola (MOT), HTC & Samsung. By comparison, it announced 5 new smartphones at last year's CES.  It will sell a tablet computer from MOT but declined to elaborate.  ATT also will speed up its plan for upgrading the network with LTE, a high-speed technology already offered by rival Verizon (VZ), scheduled for the middle of 2011.  ATT also plans to sell a high-speed phone from HTC called Inspire 4G & a phone called Infuse from Samsung. The Infuse would be its thinnest phone at 9 millimeters & would sport its largest display, a 4.5" screen.  The stock gained 10¢ today & has a nice run in the last 6 months.

AT&T   ---   2 years

US auto sales could rise to almost 13M vehicles in 2011, the 2nd straight year of gains, demonstrating the market’s recovery is legitimate.  Total deliveries would rise 11% from 2010 after rebounding to 11.6M vehicles last year from a 27 year low in 2009, according to Autodata.  The gain would provide additional revenue for an industry that returned to profitability in 2010, led by Ford (F) earning $6.4B in the first 3 qtrs.  However, the forecast is for the 3rd-lowest annual total since 1992 & would be 23% below the average 16.8M annual sales rate before the recession.  Sales this year may be as much as 13½M when including medium & heavy-duty trucks.  Ford was up 51¢ & has a spectacular run from when it was on death's door 2 years ago.

Ford   ---   2 years

Since the start of Dec, the Dow is up 715, hardly pausing along the way.  Optimism is high & risk is of little concern to investors in the pursuit of market gains.  The strong acceptance for new offerings of junk bonds with modest yields signals that markets are poised for extending the 2 years rally.  I still worry about that unforeseen glitch which could bring a rude shock to those not expecting setbacks.  

Dow Jones Industrials   ---   1 year

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