Market Update | March 2, 2009

Digesting Information:

As March is upon us, major headlines resurface at a rapid pace. Simply, growing factors contribute to uncertainty. Some view the government 35% stake in Citigroup as a historical event. On the other hand, few argue that deals of this capacity fuel pessimism especially for banks and equity markets. At the same time, Berkshire Hathaway’s annual report reinforced overall challenges for those seeking profitable areas. Similarly, Healthcare stocks are being tested despite relative leadership in 2009. The sector declined on pending budget proposal and forced buyers to reassess long positions. At this stage the attractiveness of paper assets remains questionable and less convincing.

Reaching a compromise:

Clearly, the past 12 months witnessed several all-time economic and financial records. Nonetheless, select indicators point to a turnaround. For example, slight increase in retail sales,rising mortgage applications and recovering corporate bond markets. Perhaps, too early to judge. Mainly, the clash between investor confidence and government policies should dictate market direction. This debate among market participants will play out in the second quarter.  

“Unstable weather may more often occur during spring, when warm air begins on occasions to invade from lower latitudes, while cold air is still pushing on occasions from the Polar Regions.”( Wikipedia)

Macro Drivers:

AAII investor sentiment data shows 24% of investors are bullish and 45.1% bearish. This breakdown is close to sentiment readings from summer 2008.  Similarly, Gold is approaching July 2008 levels as well. Around that period, Gold failed to hold above $950, Crude peaked at $147, S&P tumbled near 1300 and 10 Year Yields peaked near mid 4%. Investors await for additional clues to confirm upcoming inflection points. Recent history reminds us of a high possibility for a synchronized downturn across various sectors.

Recently, the S&P 500 broke below a key psychological point of 800. Eventually, this  bruised confidence and triggered sell technical signals. Additionally, the fundamental erosion fails to create buyer interest. Despite growing concerns, the US Dollar remains strong. On a relative basis the Dollar is accepted as a safer instrument and continues to outperform.

Macro Levels:

Crude ($44.76):  Three month range forming between $34 and $46.  The past 3 rallies have failed to hold above $50. Additional catalyst are needed to make a surge from this declining trend.

Gold ($952): In July 2008, prices peaked at $986 which marked the beginning of a sharp decline. The commodity remains overbought in the near-term with the 50 day moving average at $890.

DXY- US Dollar Index (88.08) Strengthening Dollar is a dominate and established theme. In the past year, index is up nearly 25%. The index is outperforming Gold since March 21, 2008 and approaching 3 year highs.

US 10 Year Yields (3.02%) : Recovery uptrend intact from December lows. Yields appear to stabilize between 2.80%- 3%.

 

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