DAILY MARKET COMMENTARY
May 24, 2013
The bond market closed early today in support of the Memorial Day celebration. Prices were higher on the session but they did back off of the highs of the day. When the stock market was at its worst level of the day, bonds were looking pretty. Stocks subsequently reversed the losses and bonds moved to the sidelines.
The 2-year closed the week at 0.25%, the 5-year at 0.89% and the 10-year at 2.01%. For the week the yield curve rose about +5 basis points in maturities longer than 5 years.
I am writing the closing comment before stocks have closed as equities are running their normal trading hours today. When bonds closed early, equities were in the red if by only a small amount. Since bonds closed, we have seen a bid continue in stocks and they are now higher on the day. Don’t forget that stocks are also closed on Monday so the next trading day will be Tuesday. We all know what happens on Tuesday, right? Stocks rally. We will be going for the 20th consecutive week of higher closes. However, you have to be long the night before to have it count. That means you have to buy stocks today. It doesn’t matter why stocks rally on Tuesday, it just happens.
Again, I am anticipating the close on stocks here so anything is possible.
Monday is Memorial Day. This is the day the nation honors all of the men and women who have died in the service of their country. Veterans Day honors the living as well as those who have died. In recognition of this holiday, the bond market will be closing early today and remain shuttered on Monday. Stocks will trade on normal time today, but will also be closed Monday. After the turbulence of this week I’m sure the markets could use a break.
Another benefit of the Memorial Day celebration is that Congress has started a 10-day recess. One wag said that the most dangerous place to be in Washington was outside the Capitol when the Senators and Congressmen poured out of the building on the way to the airport.
Japan’s stock market bounced around overnight. After a heart-stopping
-7.0% plunge on Wednesday the Nikkei was expected to bounce today. The Nikkei did pop at the opening but sellers returned and the Nikkei proceeded to lose 1000 points (a skid of -6.0%) from high to low in a couple of hours before short-covering brought the index back into the black. If you just looked at the closing level (a modest gain of +128 points), you’d have thought things were quiet over there when they were anything but. The Yen is rallying and this is beginning to put pressure on the hedge funds favorite trade: long the Nikkei/short the Yen.
Market instability is carrying over into Europe where small losses are seen following the better than -2% sell off yesterday.
Stock futures in the U.S. are pointing to small losses as we get the day going. Yesterday saw our markets churn a bit, but we ended the day with only small losses. The Dow was supported by a nice jump in Hewlett-Packard which produced +27 points for the Dow to offset losses in most of the other blue chips.
This morning saw durable goods orders for April come in at 3.3% at the headline level which was above forecast but March was revised even lower to -5.9%. The April increase did not offset the March contraction. The core components of orders were mixed.
Durable goods is a pretty volatile series so the news was observed then disregarded. Stocks tried to bounce a bit on the news, but that rally has been rejected.
Bond prices have been churning this week. The biggest movement of the week happened on the heels of the Bernanke testimony in which he hypothetically said that QE could end as early as Labor Day but added that it would completely depend on continued strength in unemployment. His disclaimer was lost in the shuffle. The 10-year jumped from a yield of 1.95% to 2.05% in a flash. Even with this recent rate bounce we continue to see the high water mark of 2.08% (set on March 11) continue to hold.
This morning finds the 2-year at 0.25%, the 5-year at 0.88% and the 10-year at 2.00%. The early close today will probably keep a lid on market volatility. The street has to get ready for next week’s auctions of 2, 5 and 7-year notes and have a holiday-shortened week in which to do it. I doubt that anyone wants to do too much hedging in front of a three-day weekend.
If you plan to do some investing today, try to get it done early as liquidity is expected to dry up well before the official close of 12:00 noon Mountain time.
Director of Investment Sales
Jeff's comments and insights, based on his professional expertise and the knowledge he has acquired observing the U.S. economy and global markets, are offered as his own personal observations and opinions, and not necessarily reflective of those held by SunCorp, our board or member credit unions. Please do not respond to this message as this e-mail address is un-monitored.
MONTHLY MARKET COMMENTARY
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