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Prieur Perspective: Springtime for Markets


Stimulus measures are finally taking root.

Spring is in the air - at least in the northern hemisphere and on global bourses. Last week marked the sixth consecutive up-week for stock markets, as investors' risk appetite returned amid signs of global economies and the financial sector embarking on the road to recovery.
Speculation that the unprecedented stimulus measures are starting to take root saw the safety appeal of government bonds diminishing, despite the buying support from central banks' buying programs. Similarly, gold bullion struggled to find traction as investors continued to unwind positions. Silver and oil also languished in the red, but copper, other industrial metals and soya beans surged ahead.

The performance of the major asset classes is summarized by the chart below, courtesy of A picture tells a thousand words:

Equity investors breathed a sigh of relief with Goldman Sachs (GS), JPMorgan (JPM), Citigroup (C) and General Electric (GE) all reporting better-than-expected first-quarter results. Goldie also announced a $5 billion capital raising. Meanwhile, the US Federal Reserve has told banks to keep mum on the results of "stress tests" that will gauge their ability to weather the recession, Bloomberg reported. This is to ensure the report cards don't leak during earnings conference calls scheduled for this month.

The quote du jour belongs to Elizabeth Warren, chairperson of the Congressional Oversight Panel on TARP, who said (as paraphrased by Jon Stewart): "Capitalism without bankruptcy is like Christianity without hell." Fed chairman Ben Bernanke was in agreement, saying that "... any firm that cannot meet its obligations should bear the consequences of the marketplace. But recent circumstances have been truly extraordinary."

Global stock markets, led by financials, added to the gains of the rally that commenced on March 10 (see table below). The MSCI World Index gained 2.3% (YTD -4.2%), the MSCI Emerging Markets Index 1.7% (YTD +13.5%) and the S&P 500 Index 1.5% (YTD -3.7%). These indices have risen by 28.0%, 32.6% and 28.5% respectively since the March lows.

Click to enlarge

Returns around the world ranged from top performers Ukraine (+15.2%), Denmark (+12.3%) and Norway (+11.4%) to Côte d'Ivoire (-7.0%), Kenya ( 2.8%) and Ecuador (-2.6%) experiencing selling pressure. The Japanese Nikkei 225 Average (-0.1%) was the only major index not making headway, notwithstanding the government's announcement to support the stock market. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

Focusing on the US stock markets, it's interesting to note that stocks across a broad front have participated in the 6-week-old rally. This is also illustrated by the graph below, which, in addition to the customary market breadth measures, shows the outperformance since the March lows of the Rydex S&P Equal Weight ETF (+40.8%) compared with the S&P 500 Index (+28.5%) - a market capitalization-weighted index.

John Nyaradi (Wall Street Sector Selector) reports that the strongest exchange-traded funds (ETFs) on the week were the Claymore/Delta Global Shipping (SEA) (+14.8%), iShares Dow Jones US Home Construction (ITB) (+11.9%) and SPDR S&P Homebuilders (XHB) (+11.2%). On the other end of the performance scale, the Market Vectors Gold Miners (GDX) (-6.3%), ProShares Short Financials (SEF) (-4.9%) and United States Oil (USO) ( 4.0%) performed poorly.
No positions in stocks mentioned.
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