Market X-Ray: Fading Hopes Put Stocks in the Red
Recovery concerns drag down equity and commodity markets, yet bonds have maintained their appeal.
Market Update
Fading hopes of a U.S. turnaround dragged down the equity and commodity markets this week, yet bonds have maintained their appeal. During the week, consumer confidence took a dive, retail sales contracted, and second-quarter corporate profit warnings dialed up. On the bright side, initial jobless claims were much lower than expected, although the sustainability of this trend is still open for debate.
Altogether, the Morningstar US Market Index fell another 2% this week, which is the fourth weekly decline in a row. Bigger was better in the week. The Morningstar Large Cap Index lost 1.8% versus the Morningstar Small Cap Index's loss of 3.3%.
Growth and value ended the week pretty much the same. The week closed with corporate second-quarter earnings warnings rolling in. Declining refining margins hurt Chevron's (CVX) second-quarter earnings, and the stock fell 5% for the week.
General Motors announced its emergence from bankruptcy protection after only 40 days, but this did not inspire any investor confidence.
The Morningstar Core Bond Index was up 0.6% as both government and corporate sectors were in positive territory. The Morningstar Corporate Bond Index rallied the most, with a 0.8% gain, pushing its yield down to 5.2%. This gain continues the spread-narrowing between Treasuries and corporate yields, which stands at 190 basis points. This spread is still elevated from the historical average, but much improved from what occurred during the full-blown credit crisis.
Commodities were down big, as the Morningstar Long-Only Commodity Index fell 7.4%. Three of the four commodity sectors--agriculture, energy, and metals--fell in the week. On the flip side, the Morningstar Long/Short Commodity Index lost only 0.3%. Seven of the commodities in the index are short and gain from the decline in commodity prices, and all of the energy commodities are in cash.
| Bond Index One-Week Returns (Data as of 07-09-09) | |||
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| 1 Wk | Yield | Duration |
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| Core Bond | 0.64 | 3.33 | 4.78 |
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| US Government Bond | 0.67 | 2.20 | 4.91 |
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| Corporate Bond | 0.77 | 5.23 | 5.80 |
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| Mortgage Bond | 0.53 | 3.41 | 4.10 |
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| Commodity Index One-Week Returns (Data as of 07-09-09) | ||
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| 1-Week Return % | YTD Return % | |
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| Long-Only Commodity | -7.42 | 1.54 |
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| Long/Flat Commodity | -1.58 | -0.73 |
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| Long/Short Commodity | -0.33 | -4.14 |
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For more information, call +1 312 384-3735. Daily updates and historical values are available at http://indexes.morningstar.com