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Market Update

Australian Rate Increase Heard 'Round the World

Equity markets were up strongly this week on Australia's interest rate increase and optimism about third-quarter earnings.

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U.S. equity markets were up strongly this week on Australia's interest rate increase and optimism about third-quarter earnings. Bond prices were up most of the week, then took a dive at the end following Fed remarks. In commodity markets there was a bit of role reversal as recent performers such as sugar saw prices ebb while laggards like hogs and wheat enjoyed some upside.

The Morningstar US Market Index rose nearly 5% this week. The interest rate increase by Australia's central bank gave many investors reason to think the worst of the global financial crisis may be over.

Decent results at  Alcoa (AA) and a lack of earnings warnings have also given investors some comfort heading into the third-quarter earnings season. The Morningstar Small Value Index was one of the biggest gainers this week, up nearly 7%, thanks to a continued stock surge at  Office Depot (ODP), which is now up 85% in the past three months.

Optimism around industrial and precious metals sparked buying at  Century Aluminum (CENX) and Coeur D'Alene Mines (CDE), which also helped power the index upward. The energy sector was up 7% this week, thanks to the International Energy Agency's new report forecasting an increase in global oil consumption.

The Morningstar Core Bond Index was basically flat for the week as an increase in the mortgage index offset late-week price declines in both government and corporate bond indexes. U.S. bond markets tapped the brakes in response to Federal Reserve Chairman Ben Bernanke's comments about readiness to tighten monetary policy once the economy improves.

The Morningstar Long-Only Commodity Index was up more than 2% again this week. Several commodities such as hogs, gold, silver, coffee, copper, and corn were up varying degrees this week as a weak dollar made some products more affordable. Hog prices did decline a little late in the week on evidence of increased supplies at meatpackers, according to USDA data. The Morningstar Long/Short Index is short the hog contract and stands to benefit from ongoing price declines due to ample supply.

 Bond Index One-Week Returns (Data as of 10-08-09)


1 Wk
Return (%)

Yield Duration
Core Bond -0.02 2.81 4.07
US Government Bond -0.25 2.07 5.01
Corporate Bond -0.21 4.33 5.97
Mortgage Bond 0.31 2.65 2.06

 Commodity Index One-Week Returns (Data as of 10-08-09)
  1-Week Return % YTD Return %
Long-Only Commodity 2.60 12.21
Long/Flat Commodity 0.85 2.48
Long/Short Commodity -1.24 -2.60

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Rod Bare does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.