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MARKET SUMMARY -- WEEK ENDED 04/02/04
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04/02 -- Change --
Close Week YTD
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90-Day T-Bill* 0.93% 0bp 1bp
02-Yr. T-Note 1.85% 29bp 3bp
05-Yr. T-Note 3.14% 37bp -11bp
10-Yr. T-Note 4.15% 33bp -10bp
30-Yr. T Bond 4.98% 22bp -9bp
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DJIA 10471 2.5% 0.2%
S&P 500 1142 3.1% 2.7%
NASDAQ 100 1490 5.3% 1.5%
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Dollar Index 88.51 -0.4% 1.8%
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CRB Index 281.49 0.9% 10.3%
Crude Oil@ 34.39 -3.8% 5.8%
Unl. Gasoline@ 1.0722 -5.0% 13.0%
Gold@ 421.60 -0.1% 1.4%
Silver@ 8.16 5.8% 37.1%
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*Coupon-equiv. @Near-month contract.
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Summary
The debt and equity market's diverged materially last week. The former
did poorly, stocks prospered. Both markets enter the new week at critical
junctures. In the period immediately ahead, I expect stock prices to reverse and
head lower, while
interest rates at the longer end of the Treasury curve move to still higher
levels.
Interest Rates
From the missive dated 3/29 ("Market Update"):
"It remains to be seen whether last week's upside reversal in
Treasury yields kicked off a major near-term spike in rates, at the longer end of the
curve in particular. However, at minimum, the reversal probably did mark an
important bottom.
"...Last Wednesday [3/24], the on-the-run 10-year and 30-year issues
finished the day at respective yields of 3.71% and 4.66%, having traded at even
lower yields during the session. As I write this, the current levels are
3.90% and 4.82%. So against last Wednesday's closing levels, we're talking about
respective increases of 19 and 16 basis points. This is indeed meaningful
over the time period involved!
"...It is highly likely the entire Treasury curve would be hit pretty
hard by an especially strong employment report. This is because of the major,
major deal Greenspan and the Fed have made of employment growth vis a vis
continuing accommodative monetary policy.
"In addition, the growing belief the Fed will not alter rates at all
during 2004 has emboldened hedge funds in particular with regard to their
highly leveraged debt-market 'carry trades.' Any significant jolt to this
psychology could roil the fixed-income markets in a very material way! And, because
of various 'interconnects' in the equation, trouble in the debt market could
definitely spill over into stocks."
* Last Friday, the 10-year and 30-year Treasury issues closed at 4.15%
and 4.98%, respectively, translating into respective increases of 44 and 32
basis points from the 3/24 levels mentioned above, even larger increases from the
intraday lows set on 3/24. Putting this into dollar terms, the Treasury
5.375s of 2/15/31 finished on 3/24 at $1,109.06. Last Friday, the price was
$1,057.81, for a principal loss of more than 4.6%. Over a mere seven trading
sessions, this is a big deal, and 22 of the 32 basis points in damage occurred in
last week's five trading days, 18 of them on Friday alone. (See Table 1 in
appendix at end of text.)
* The primary culprit in sending yields materially higher was Friday's
employment report. It also abruptly changed expectations in the federal funds
futures market about a possible Fed rate increase, perhaps even two of them,
during 2004. However, as Table 2 indicates, the futures market presently looks
for the Fed (Greenspan) to steer as clear as possible of action(s) prior to
the Presidential election. I suspect, though, that events of the next few
months may remove this option from them/him.
* Despite last week's spike in US rates, Treasury yields across virtually
all the one- through 10-year curve remained below the yields available on
government bonds in Australia, the United Kingdom and Germany. (See Table 3.)
The Stock Market
* The tracking group put in a more than respectable showing last week,
registering an average gain of 3.9% (median = 3.3%). Gains ran in a range of
5.3% for the NASDAQ 100, to 2.5% for the DJIA.
* In addition, the Russell 2000 made a 52-week closing high on Friday,
albeit just marginally above the prior high, set on 1/26. The Value Line
(geometric) just missed a 52-week closing high on Friday, finishing about 0.3% below
its prior high, which was established on 3/5. (See Table 4.)
* But herein could be a problem, should the market turn back from around
current levels. A turndown from around current levels would generally
continue to resemble the failing-rally/topping pattern that has been progress now for
the last several weeks to couple months. As of Friday's close, the tracking
group stood, on average, 2.3% below the close on 1/26. Only two of the seven
components were higher than respective 1/26 closes, one was about even, and
four were lower. (See Table 4.)
* All things considered, I believe something approximating retests of
200-day moving averages, perhaps even something a bit worse, remains the likely
outcome for the period ahead. From Friday closes, this would entail 5.7%, 7.1%
and 6.9% declines for the DJIA, NASDAQ Composite and S&P 500, respectively.
(See Table 5.)
NOTE: Additional stock-market data are found in Tables 6 through 8.
TABLE APPENDIX
TABLE 1.
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TREASURY YIELD CURVE AS OF 04/02/04
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90-Day 2-Yr. 5-Yr. 10-Yr. 30-Yr.
Date Bill* Note Note Note Bond
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04/02/04 0.93% 1.85% 3.14% 4.15% 4.98%
03/26/04 0.93% 1.56% 2.77% 3.82% 4.76%
12/31/03 0.92% 1.82% 3.25% 4.25% 5.07%
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BASIS-POINT CHANGE TO 04/02/04 FROM:
------------------------------------------------
03/26/04 0 +29 +37 +33 +22
12/31/03 +1 +3 -11 -10 -9
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YIELD-SPREAD DIFFERENTIALS (Basis Points)
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90D-> 02Y-> 05Y-> 10Y-> 90D->
02Y 05Y 10Y 30Y 30Y
--------------------------------------
04/02/04 +92 +129 +101 +83 +405
03/26/04 +63 +121 +105 +94 +383
12/31/03 +90 +143 +100 +82 +415
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*Coupon-equivalent yield.
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TABLE 2.
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FEDERAL FUNDS FUTURES -- 04/02 VS. 03/31
--------------------------------------------
04/02 03/31 BP Scheduled
Contract Close Close* Chg. FOMC Meetings
----------------------------- -------------
Apr. '04 1.01% 1.00% +1 No Meeting
May '04 1.02% 1.01% +1 May 4
June '04 1.02% 1.01% +1 June 29-30
July '04 1.08% 1.03% +5 No Meeting
Aug. '04 1.09% 1.07% +2 Aug. 10
Sep. '04 1.13% 1.11% +2 Sep. 21
Oct. '04 1.33% 1.16% +17 No Meeting
Nov. '04 1.45% 1.23% +22 Nov. 10
Dec. '04 1.58% 1.32% +26 Dec. 14
--------------------------------------------
TABLE 3.
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APPROXIMATE INTEREST RATES OF SELECTED
COUNTRIES' SOVEREIGN DEBT SECURITIES
-------------------------------------------------
Maturity
Date ----------------------------
Country 2004 1-Year 2-Year 5-year 10-year
-------------------------------------------------
Australia 04/02 5.16% 5.13% 5.36% 5.50%
United Kingdom " 4.34% 4.56% 4.78% 4.89%
Germany " 2.11% 2.37% 3.31% 4.08%
-------------------------------------------------
UNITED STATES " 1.15% 1.85% 3.14% 4.15%
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Japan " 0.03% 0.13% 0.62% 1.44%
=================================================
Yield Spreads -- Treasuries Vs. Foreign
---------------------------------------
Australia 04/02 -401 -328 -222 -135
United Kingdom " -319 -271 -164 -74
Germany " -96 -52 -17 +7
Japan " +112 +172 +252 +271
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TABLE 4.
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SELECTED STOCK-MARKET MEASURES
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Recent Highs 04/02
04/02 ------------ 02/11 01/26 From
Close Close Date Close Close 01/26
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Russ. 2000 603 603 04/02 597 602 +0.2%
NYSE Comp. 6680 6780 03/05 6751 6672 +0.1%
Value Line 384 385 03/05 384 384 0.0%
Wil. 5000 11202 11314 03/05 11293 11282 -0.7%
S&P 500 1142 1158 02/11 1158 1155 -1.1%
DJIA 10471 10738 02/11 10738 10703 -2.2%
NASDAQ 100 1490 1554 01/26 1514 1554 -4.1%
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Average -2.3%
Median -1.1%
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TABLE 5.
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200-DAY MOVING-AVERAGE VIOLATIONS --
VALUES PROJECTED FROM CLOSE ON 04/02/04
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% Decline From
MA Violation/ 04/02 Close At
Resulting Price Violation Of:
04/02 --------------- -----------------
Measure Close 0% 3% 6% 0% 3% 6%
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DJIA 10471 9876 9580 9283 5.7 8.5 11.3
NAZ Comp. 2057 1911 1854 1796 7.1 9.9 12.7
S&P 500 1142 1063 1031 999 6.9 9.7 12.5
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TABLE 6.
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NEW YORK STOCK EXCHANGE BREADTH MEASURES
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Volume* Issues 52-Week
---------------- -------------- --------------
Week -A- -B- -A- -B- A/ H/
Ended Total Advan. B/A Adv. Decl. A+B High Low H+L
----------------------------------------------------
2004
04/02 7.148 4.995 0.7010473 5901 0.64 1262 55 0.96
03/26 7.140 3.267 0.46 7876 8427 0.48 469 91 0.84
03/19 7.181 3.204 0.45 8010 8351 0.49 920 56 0.94
03/12 7.658 2.228 0.30 6795 9665 0.41 872 49 0.95
03/05 6.842 3.924 0.57 9780 6574 0.60 1588 21 0.99
02/27 7.017 3.696 0.53 9220 7094 0.57 822 30 0.97
02/20#5.688 2.452 0.43 6072 7023 0.46 958 16 0.98
02/13 7.061 3.810 0.54 8944 7381 0.55 1627 20 0.99
02/06 7.568 4.043 0.53 8713 7637 0.53 917 37 0.96
01/30 8.324 3.613 0.43 7122 9278 0.43 1362 23 0.98
01/23#6.550 3.429 0.52 7524 5589 0.57 1968 6 0.99
01/16 7.896 4.678 0.59 9415 6976 0.57 2096 7 0.99
01/09 8.185 4.705 0.58 9344 7068 0.57 2402 28 0.99
01/02#4.007 2.450 0.61 7680 5279 0.59 2062 38 0.98
2003
12/26#3.219 1.970 0.61 7615 4996 0.60 1478 21 0.99
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*Billions of shares. #Four-day trading week.
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TABLE 7.
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DJIA, S&P 500 AND NASDAQ 100 -- TW0-
WEEK COMPOUND ANNUAL RATES OF CHANGE
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PROJECTED VALUES TO 04/02/04 FROM 04/02/04 CLOSE
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Projections to 04/09/04
>From ------------------------------------------
04/02 2-Wk. S&P 2-Wk. NASD 2-Wk.
Close DJIA ROC 500 ROC 100 ROC
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+5% 10994 +579% 1199 +677% 1565 +1263%
+3% 10785 +312% 1176 +370% 1535 +724%
0% 10471 +91% 1142 +119% 1490 +280%
-3% 10156 -14% 1108 -0% 1446 +74%
-5% 9947 -50% 1085 -42% 1416 +1%
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TABLE 8.
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THE BEHAVIOR OF CBOE SENTIMENT-RELATED MEASURES
AND THE S&P 500 FROM 12/26/03 THROUGH 04/02/04
----------------------------------------------------
S&P 500
Date CBOE Options -------------------
or Put/Call Ratios Versus Cum.
Week CBOE -------------------- Prior 10/9/02
Ended VIX* All Equ. Ind. Tot** Close Week = 100
----------------------------------------------------
2004
04/02 15.63 0.63 0.53 1.62 0.83 1141.8 +3.0% 147.01
03/26 17.33 0.77 0.62 1.46 0.83 1108.1 -0.2% 142.67
03/19 19.15 1.03 0.89 1.60 0.83 1109.8 -1.0% 142.89
03/12 18.30 1.05 0.82 1.70 0.84 1120.6 -3.1% 144.28
03/05 14.48 0.79 0.61 1.50 0.83 1156.9 +1.0% 148.95
02/27 14.55 0.72 0.59 1.40 0.83 1144.9 +0.1% 147.41
02/20 16.04 0.86 0.66 2.02 0.83 1144.1 -0.1% 147.30
02/13 15.58 0.76 0.59 1.58 0.81 1145.8 +0.3% 147.52
----------------------------------------------------
02/11@15.39 0.68 0.56 1.19 0.82 1157.8 -- 149.07
----------------------------------------------------
02/06 16.00 0.63 0.46 1.72 0.82 1142.8 +1.0% 147.14
01/30 16.63 0.81 0.71 1.30 0.83 1131.1 -0.9% 145.63
01/23 14.84 0.77 0.60 2.17 0.82 1141.6 +0.2% 146.98
01/16 15.00 0.51 0.35 1.95 0.85 1139.8 +1.6% 146.75
01/09 16.75 0.65 0.45 1.75 0.84 1121.9 +1.2% 144.44
01/02 18.22 0.75 0.53 1.94 0.83 1108.5 +1.1% 142.72
2003
12/26 17.45 0.57 0.38 2.91 0.82 1095.9 +0.7% 141.10
----------------------------------------------------
VIX Highs and Lows (Including Intraday)
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Year High Date Low Date
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2004 22.67 03/22 13.80 03/05
2003 41.16 03/12 14.83 12/15
2002 56.74 07/24 18.87 03/28
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@S&P high close, 10/9/02 forward.
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