Stocks Shrug Off Bond Troubles
The bond market is signaling that Berkshire Hathaway's bonds are safer than the U.S. government's now.
Market Update
Real U.S. GDP increased by 5.6% in the fourth quarter of 2009, giving equity investors reason to cheer, despite the fact that the results missed expectations by 0.3 percentage points. Preliminary estimates of corporate profits were also positive, showing a gain of 36% on an annualized rate in the fourth quarter.
On the other side of the ledger, bonds had troubles that did not let up for most of the week. In fact, the bond market is signaling that Berkshire Hathaway's (BRK.B) bonds are safer than the U.S. government's now.
Despite the mixed economic results, the Morningstar US Market Index gained 0.6%. The gains were fairly uniform across style and size. The Morningstar Large Cap Index gained 0.6%, and the Morningstar Small Cap Index gained 0.5%.
Value stocks topped growth this week. The Morningstar US Value Index gained 0.8%, and the Morningstar US Growth Index gained 0.5%. Following the passage of groundbreaking U.S. health-care legislation, the sector was down slightly. Earning top marks was the media sector, up 3.1%. Companies such as Disney (DIS) are starting to show a turnaround in online ad spending, which helps support the sector.
Giving bond investors the most indigestion was the level of U.S. indebtedness as a percent of GDP, which is now cresting at 70% according to government records. Overall, the Morningstar Core Bond Index fell 0.72%. Investor enthusiasm waned for both Treasuries and corporate bonds. The government side is suffering from significant volumes of new issuances at the same time that investors are questioning the ability of the government to finance its debt. Both the Morningstar US Government Index and the Morningstar Corporate Index fell 0.88%; these are the biggest drops so far in 2010. In fact, the two-year notes sold by Berkshire Hathaway in February yield 3.5 basis points less than Treasuries of similar maturity.
The Morningstar Long-Only Commodity Index fell 2.7%. All commodity sectors were in the black this week; the Morningstar Agricultural Commodity Index lost the most with a 3.8% loss for the week.
| Bond Index One-Week Returns (Data as of 03-25-10) | |||
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| 1 Wk | Yield | Duration |
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| Core Bond | -0.72 | 3.04 | 4.38 |
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| US Government Bond | -0.88 | 2.38 | 4.84 |
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| Corporate Bond | -0.88 | 4.17 | 5.92 |
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| Mortgage Bond | -0.44 | 3.13 | 3.00 |
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| Commodity Index One-Week Returns (Data as of 03-25-10) | ||
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| 1-Week Return % | YTD Return % | |
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| Long-Only Commodity | -2.72 | -6.11 |
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| Long/Flat Commodity | -1.57 | -3.53 |
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| Long/Short Commodity | -0.68 | -2.34 |
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