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VOL. 36 | NO. 12 | Friday, March 23, 2012

Tech stocks, banks emerge

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Last week provided another powerful advance in both equity and fixed income markets. On the equity side, the three major domestic stock indices accomplished impressive feats. After briefly falling back below 13,000 at the end of February, the DJIA (Dow Jones Industrial Average) crept above that level at Tuesday’s close.

In fact, the DJIA’s close Thursday, March 15, marked the seventh positive session in a row, its longest winning streak since February 2011. The NASDAQ closed above 3,000 for the first time since November 2000 (yes, that long ago), and the S&P 500 reached a closing level over 1,400 for the first time since June 2008. In the Treasury market, the yield on the 10-year bond has surged higher, quickly approaching the 2.40 percent level last seen in late October/early November 2011.

If we look under the hood and expand our timeframe to year-to-date figures, interesting data is materializing when comparing the winners and losers of 2012 vs. 2011. Consider the following comparison of various Exchange Traded Funds (ETFs):

So, domestically, financials, materials, technology and energy were the clear sector laggards for 2011. Outsized returns last year were provided by health care, consumer staples, utilities and dividend paying companies. Investors who continued to pile into those areas at the end of the year have been left behind this year, as those same sectors have posted single digit or negative returns. Conversely, last year’s losers have turned into this year’s winners, with banks, technology and materials all starting strong out of the gate.

The whipsaw effect is even more striking when we shift our focus to the fixed-income landscape. Here are more ETF returns to digest:

Even the 2012 equity market laggards have largely been able to generate positive returns. That is not the case in fixed income. Treasury bonds were the darling of the bond market in 2011, but they have been a bitter pill to swallow so far in 2012. Yes, the Federal Reserve has succeeded in keeping rates low. However, as relatively positive economic data continues to surface, Treasury rates have risen in spite of the Fed, as fixed-income investors are gradually moving out of that safe haven and into the corporate debt arena.

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