Offset by oil
Occasionally there is a departure, but for all intents and purposes markets are affected by oil. Stronger than expected U.S. inflation data is also a factor but is offset by weak energy.
We caution investors against aggressive participation in the markets, and with interest rate fears of a negative rate by the U.S. Federal Reserve, there are few choices for investors who seek returns. We will advise our clients of any changes of sentiment.
The 30-year Treasury bond closed Friday at 166 16/32nds, up 1 30/32nds. As yields declined by 2.8 basis points to 2.604% from 2.632% on Thursday but was slightly higher for the week. Prices on treasuries were influenced by oil prices and equity markets.
As equity markets move higher money moves from the safety of U.S. treasuries back to equities and vice versa. Inflation data as reported by the United States for January was higher than expected. As we stated recently, we prefer the sidelines, but prepare to enter the treasury if equity prices show signs of weakness. We are concerned that there are signs of a growing global recessionary trend.
The Dow Jones industrial average closed Friday at 16,392, down 21.44, or 0.13%. The S&P 500 closed at 1,918.78, down 0.05, and the Nasdaq closed at 4,504.43, up 16.89, or 0.38%. Stocks closed mixed even as continued weakness emerged in crude oil, which the markets usually track.
Stocks still managed to close with their best weekly gain in over a year. Investors feel the markets have stabilized after their sharp sell off in January. We disagree, and feel the gains this past week were a result of shortcovering and unrealistic expectations of renewed gains tied to stronger than expected inflation data.
However, that expectation was tempered by the continued weakness in crude oil. We once again suggest strong holders of large equity portfolios implement strategic hedging strategies.