By Rick Glaze
The S&P 500 index advanced 0.5 percent Friday but still finished the week down 0.8 percent. The Dow Jones Industrial Average edged up slightly with a 0.1 percent gain. Investors had some good news with better-than-expected readings on economic growth, Midwest manufacturing and consumer confidence. But oil prices reached a frenzied $39.99 per barrel in intra-day trading. That level of oil prices was almost double the long-run average, which is a basic indicator of a bubble. A protracted waiting period for a resolution to the Iraqi problem may leave oil prices at these higher levels for a few months and will likely effect spending and the economy across the board.
Market participants are weighing the uncertainty of pending war against the certainty of a tyrant with lethal weapons ready to rein them down indiscriminately. Post cold war was a special time that opened up markets worldwide with very little concern for danger. The economy can prosper, however, even in tougher political times.
While the gold index is up 14 percent in the past three months, it is down 10.92 percent since January 1st. After hitting a high of 82, the index has fallen back to around 70. Like gold U.S. Government bonds are considered a safe haven. The ten year treasury bond surged to a 4.25 percent yield in October but has fallen to 3.67 percent. The yield goes down as the price rises. This has been caused by the huge demand for the bonds. Consumers are seeing this translated to ever lower mortgage rates. Just as you should consider locking in mortgage contracts at these levels, you should not concentrate much capital in the longer maturity bonds. A 20-year bond at around 4 percent may not be very attractive in a few years. What if interest rates stay low for a while? And they might! Stick with the intermediate to short bond maturities.
A few other sectors have been performing better than the overall market. Natural gas stocks have moved higher as the winter has gotten colder on the east coast and Midwest Certain other energy and natural resources has performed well. After sliding somewhat in the Fall, real estate stocks have stabilized while maintaining their hefty dividend yield. Even the semiconductor stocks have stopped their slide and appear to be building a healthy base.
