Equities

Global stock markets surged last week on the back of a combination of bargain-hunting and short covering, albeit on light trading volume as a result of the Thanksgiving holiday in the US.

Both mature and emerging markets shared handsomely in the rally that commenced on November 21, as shown by the subsequent gains of the MSCI World Index (+15.7%) and the MSCI Emerging Markets Index (+13.5%). Notwithstanding the improvement, these indices are still down by 43.8% and 57.7% respectively for the year to date.


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Click here for Finviz’s (delightfully green) market map that provides a quick overview of last week’s performances of global stock markets (as reflected by the movements of ADR stocks).

The US stock markets all rallied sharply over the week as shown by the major index movements: Dow Jones Industrial Index +9.7 (YTD -33.5%), S&P 500 Index +12.0% (YTD -39.0%), Nasdaq Composite Index +10.9% (YTD 42.1%) and Russell 2000 Index +16.4% (YTD -38.2%).

The bar chart below, also from Finviz.com, shows the US sector performances over the week, specifically how strongly financials and materials have recovered.


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As far as industry groups are concerned, the automobile manufacturing group (+82%) was the top performer for the week. General Motors (GM) and Ford (F) rose by 71% and 88%, respectively, on the expectation that auto makers will receive a government bailout.

The homebuilding group (+59%) was the second-best performer on the prospect that the US government’s latest rescue package will result in lower mortgage rates and mortgage credit becoming more readily available.

7 of the 10 underperforming groups were from the 3 top-performing sectors for the year to date – consumer staples, health care and utilities. These sectors, which typically outperform in a declining market, tend to lag in a rising market such as the one experienced last week.

Interestingly, the percentage of S&P 500 stocks trading above their 50-day moving averages has increased from almost zero in October to 19% on Friday – a promising improvement.


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I am often asked by readers about Richard Russell’s (Dow Theory Letters) latest views. This is what he said on Friday:

“The big question now is whether the tide is in the early process of turning bullish. If so, we should be seeing a series of constructive, even bullish days. I wonder whether my more aggressive subscribers shouldn't jump the gun and maybe buy the Diamonds (DIA) at the opening on Monday.”

Fixed-interest Instruments

The 10-year US Treasury Note yield declined to its lowest level since record-keeping began in 1958, closing 25 basis points lower on the week at 2.93% after falling as low as 2.82% earlier on Friday.


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In addition to economic and deflation worries, Treasuries also benefited from lower mortgage rates as a result of the Fed’s decision to buy GSE-insured mortgage paper. The 30-year fixed mortgage rate dropped by 25 basis points to 5.84%.