Wednesday, January 6, 2010

The Third Trading Day of 2010 - The Message From the Market

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

U.S. stocks stalled on the third trading day of 2010, just as they had on the second. The Dow and S&P 500 were barely up, while the Nasdaq and Russell 2000 closed a bit lower. Foreign stocks, including emerging markets didn't do much better, being up only slightly. While stocks went nowhere fast, commodities rallied strongly. Inflation sensitive gold, silver and oil did particularly well. Long-term bonds sold off and interest rates rose. The dollar was down on the day and net down on the year so far.

The stars of the beginning of the year trading have clearly been commodities and commodity related stocks. In the first three days, the best performing industry sectors have been Energy, up 5.3%, and Basic Materials, up 5.0%. The commodity index DJP has risen 3.8%. Metals and energy have led, while agricultural commodities have lagged. Silver was a star among stars, rising 7.7% in three days. Natural gas was up 5.8%. Copper, the most industrially sensitive metal, was up 4.4%. Oil was up 4.1% and gold up 3.7%.

Of the nine major industry sectors that make up the U.S. stock market, the interest rate sensitive Utilities group is the only one down on the year so far. Long-term bonds sold off on the third trading day and the yield on the 30-year treasury is slightly up, while the yield on the 10-year is slightly down. Technology and Consumer Staples are barely up and are clearly not being favored by investors. Consumer Discretionary and Health Care are doing only slightly better. Industrials rallied 2.4% and Financials 4.0% in early trading and are the best performing groups after the two sectors related to commodities.

Investors would be advised to look for opportunities outside the U.S. though. While the S&P 500 was up 2.0%, emerging market stocks were up 3.9% (on a par with commodities). Of the BRIC countries Russia did best, with RSX being up 6.5% and China followed, with FXI rising 5.4%. EWZ, the ETF for Brazilian stocks rallied 4.3%. Indian stocks were up 4.0%, double the amount of the U.S. market. Commodity based economies Australia and Canada had stock market gains of 4.6% and 3.5% respectively, also well ahead of the U.S.

Disclosure: Long gold, silver, and natural gas. Short long-term treasuries.

NEXT: The Fourth Trading Day of 2010 - The Message From the Markets

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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