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2011-01-20 Market Recap

U.S. stocks declined for a second-straight session as what’s occurring in the international arena is affecting investor sentiment again.   News that Spain’s banking trouble has not magically disappeared and worries that China will fail to administer a soft landing as it works to combat soaring property and food prices – both major risks we’ve talked about for a long time now – offset better-than-expected domestic economic data. 

As a result of the concerns, basic material and energy shares led the broad market lower.  Utilities, financials and consumer staples were the day’s out-performing groups. 

Mid and small-cap stocks have taken it on the chin over the past two sessions, which isn’t a good sign for the near-term direction of the market but it’s too early to make that assumption just yet.  Mids are down 2.5% and smalls by 3.5% over the last two days.

Long-end Treasury yields backed up about 8 basis points to a two-week high after two of three of yesterday’s major economic releases surpassed expectations – the 5-yr to 2.03%, the 10-yr to 3.44% and the 30-yr to 4.60%. 

Touching on Asia for a moment (I’ll get to Spain below), what the Fed has done is export inflation to the Asian economies as the aggressive policy stance has increased speculation within the commodities market – flooding U.S. dollars into the system also results in massive capital flows into those economies; we’ve seen this game before.  Sure, weather events in several parts of the globe have played a role in pushing food prices higher and China’s massive stimulus program has also been a major factor.  (According to some accounts, the Chinese government has reportedly injected $1.4 trillion, or 28% of GDP, into their economy since 2009.)  But the Fed has played a huge role and now those economies will continue to unwind that stimulus in order to thwart social uprisings.   The global recovery has been engineered like never before, and such massive short-sighted policy always has a payback effect. 

Still, the adverse effect the international news had on trading was mild and as we discussed yesterday this two-day slump in stock prices is hardly a blip on the screen relative to the rally we’ve since that August 27 Bernanke speech.  But these are issue that need to be considered as we look 6-12 months out. 

Market Activity for January 20, 2011

Index

Close

Change

% Change

YTD

1 Yr Rolling %

Dow Jones

11822.80

-2.49

-0.02%

2.12%

11.50%

S&P 500 - Large Cap

1280.26

-1.66

-0.13%

1.80%

12.50%

S&P 400 - Mid Cap

916.74

-7.19

-0.78%

1.05%

22.76%

Russell 2000 - Small Cap

778.08

-8.81

-1.12%

-0.71%

21.65%

NASDAQ

2704.29

-21.07

-0.77%

1.94%

18.03%

Sector Activity for January 20, 2011

Index

Day Change

YTD

Consumer Discretionary

+0.22%

0.84%

Consumer Staples

+0.42%

0.12%

Energy

-0.70%

2.74%

Financials

+0.50%

2.36%

Health Care

+0.21%

2.02%

Industrials

-0.67%

2.11%

Information Tech

-0.67%

3.65%

Basic Materials

-1.50%

-2.41%

Telecoms

-0.19%

-3.89%

Utilities

+0.62%

2.01%