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Market Insights

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Six Charts that Matter

05/16/2011
Capital markets continue to soften as moderating global growth and the end of the FOMC's $600 billion asset purchase program are being "priced in." Given the market evidence, I do not expect a harsh correction to unfold. Sideways to lower is more likely. The six charts below are worth watching. . . .
 
1.       S&P 500® Index
 
The S&P 500®  Index remains above its 100-day moving average at 1309; a sustained sell-off below 1309 presents more ominous evidence for the near-term direction of the Index.


Source: Bloomberg 

2.       U.S. Dollar
 
Is the U.S. dollar's recovery driving the softening in the S&P 500? Maybe. If so, further appreciation above 76.00 would be problematic.


Source: Bloomberg

3. U.S. 10-Year Treasury

Regulatory measures are aggressively attempting to reduce speculative froth in the commodities space. Outflows from commodities are finding homes in more defensive asset classes. Clearly, the 10-year U.S. Treasury is one home. The 10-year is approaching its 200-day moving average at 3.07%; it has not traded below the 200-day average since early December.


Source: Bloomberg 

4.       Health Care XLV
5.       Technology XLK
 
Moderating global growth and a more defensive market, performance of the health care and technology sectors since March accurately depicts this change in sentiment. Their performance emphasizes the need to be diversified now more than any other time since May 2010. I am encouraged that money allocated to highly sensitive growth sectors, such as technology, is not being hoarded. Appreciation in the health care, consumer staples and utilities sectors suggest it is just "hiding out."  


Source: Bloomberg


Source: Bloomberg

6.       Corporate Earnings
 
Earnings from S&P 500 Index corporations remain incredibly robust. The chart below measures quarterly earnings, which continue to improve quarter to quarter, and the most fundamentally sound element of the markets' significant appreciation since 2009.


Source: Bloomberg

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