The S and P Breaks 1000
Aug 4, 2009
Posted by Jody Eisenman | Filed under Uncategorized
For the first time since Nov. 2008, the S and P broke 1000 on the upside yesterday. We have now rallied an incredible 50% off the March lows of 666. Can this rally continue?
On the plus side, the credit markets have improved dramatically. In normal times, roughly $6 billion in new corporate bonds are priced each day. At some point last year, this number was down to around $2 billion. Investors were reluctant to invest in very little outside of government insured paper, despite the anemic interest rates being offered. This past month, new issue corporate bonds averaged $7.5 billion per day, and the bond market has traded up substantially. Even junk bond spreads, which hit a high of almost 20% at one point, have now declined to around 8.5% above treasuries. Of course, this is still a far cry from less than 3% in 2007, but that was an extraordinarily low spread in itself. Right now, anyone short is probably having their head handed to them, as the stock just continues to power on ahead. The fact that the health care issue has been put off until after the summer, and that California has at least temporarily resolved its’ budget crisis certainly helps as well.
On the negative side, the unemployment rate shows no signs of abating anytime soon, and the Mideast situation could flare up at any time. Additionally, many analysts believe that we have simply come too far way to fast to not risk another pullback. It should continue to be an interesting summer.
