The SPY traded in a pretty tight range this week, not trading much below 93 or above 95.50. Again, we were looking for that catalyst to push us one way or the other, and I thought we were going to get it Friday morning with the much better than expected non-farm payroll number. We’ll see this week if Friday’s weakness was a precursor to a sell off in the market.
A look at ETF performance. The interesting thing to see is the ridiculous underperformance of the financial ETF’s. The leveraged ETF’s have proven to track intraday volatility very well, but long term returns are lacking. I know that they are working on developing ETF’s that track returns on a monthly basis as opposed to a daily basis, so that longer term investors can benefit from the added volatility.
JP Morgan hired a storage tanker for crude this week. This is very noteworthy, as they obviously want to take advantage of higher oil prices in the future. Looks like they are preparing themselves for the the inflation trade.
A record high on the yield curve was hit this week. A few years ago, the inverted curve signaled that the economy was ready to dip into a recession, although everyone was saying, “This time it’s different.” Again they’re saying the same thing with regards to the recovery and the prospect of better times ahead, although I think a convincing argument can be made for either case. People are scared that the real reason the spread is widening is because of concern of the US Treasury deficit. Regardless, yields going up on the long end of the curve, will affect mortgage rates, which will affect housing prices, which will need to begin a rebound before we can begin to think of getting out of this mess.
The China recovery story seems to have some holes in it. Interesting read, as many analysts are claiming that the reason for the rise in commodity prices is because demand in China is picking up again. If the China recovery isn’t going as stated, we could be ready to experience a sharp pullback in commodity prices.
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