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Trade Desk Thoughts: Investment Of The Year - Crude Oil

Investment Of The Year: Crude Oil

2009 has been a major year for the financial markets. At the beginning of 2009, the financial world almost came to a standstill, yet by the end of year the financial markets saw some of the strongest trends over the last few decades.

The word of the year was “credit crisis”, which before 2009 for many was just a term that appeared in academic lectures from time to time. Unfortunately, now we all know the true meaning of a credit crisis.

The following is a review of how the main asset classes have performed in 2009, the year affected by sub-prime, credit crisis, risk-aversion, bailouts and central bank quantative easing programs.

As seen in the attached chart, from the beginning of the year, crude oil surged 86%, being the crown performer for 2009. Not only did crude oil have a strong year, but the entire range of commodities did very well. The CRB Index, which tracks the performance of 19 commodities, gained 35% in 2009, being the second best performer of 2009.

The third place spot on the podium goes to the S&P index, which gained 26%. However, the U.S. equity index was in a strong recovery mode since March 2009, gaining 60%, in one of the strongest moves of the last few decades. Since 1988, the S&P index median annual return is approximately 11%, and over this period, the index beat 2009’s 26% performance on only 6 occasions (1989, 1991, 1995, 1997, 1998 and 2003). A conclusion would be that, despite the credit crisis, the equity market had a strong year.

Turning to individual sectors, basic material companies posted the strongest gains throughout 2009, gaining 51%. This is not a big surprise, judging from the returns posted by commodities. Following basic materials were technology shares, which advanced 40%. This explains why the tech-driven NASDAQ index had outperformed the DJIA and the S&P 500 indexes throughout the year.

sector returns

Turning to the currency market, the aussie was the king of the hill in 2009. The Aud/Usd was driven by strong fundamental data, including strong demand for Australian commodities coming from China, and  the interest rate differential from a central bank that was determined to hike rates. However, it has been clearly seen that the last month of 2009 was dominated by the dollar, in a trend that will probably continue through 2010.



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