All market averages moved higher today paralleling the anticipation, and speculation, that the Fed’s report, due tomorrow, will promise that its bond buying will continue so that interest rates will remain low for now. And now that Lawrence Summers will not be the Fed’s next Chairman, the feeling is that rates will stay low, not just now, has spread to the longer term.
Today’s diagram continues the comparison of the S&P500 and the inverse of the interest rate on the Ten Year Treasury debt. Since interest rates and capital values move in opposite directions, the rate’s inverse shows the worth, or cost, of assets.
Whereas the market realized this relationship all summer long –as the S&P500 and value moved in parallel- the S&P500 started to shoot up while the value index declined. Surely such contradiction of financial fundamentals signals conjecture and guesswork; that is speculation replacing essentials.
Our analysis of yesterday’s closing patterns revealed their greater frequency during bear markets than when prices are trending higher. Today’s results -the third successive gain for the DJIA and the S&P500, while the NASDAQ moved up after its earlier decline- are consistent with that conclusion. Yet, though the closes of the last two days occur less than one out of a hundred days, this development deserves attention.
DJIA .77 percent
NASDAQ -.12 percent
S&P500 .57 percent
