A positive week
The Dow Jones Industrials fluctuated in a tight range this week, but the NASDAQ composite index saw rather favorable forward momentum for the most part. During most of the week, equity investors were concerned about corporate earnings. The general view in the stock market has been that positive economic news is generally better for this market because it improves the outlook for profits down the road. Equity investors were somewhat less concerned about the potential for more aggressive easing. It seems that this sentiment shifted on Friday when the April employment situation showed a marked deterioration in the labor market. Initially, stock prices dived on the information but came back to the positive territory after considering that the Fed would likely reduce rates further by another 50 basis points at the FOMC meeting on May 15.

The Wilshire 5000 is nearly invisible in this chart because it seems to be following the path of the S&P 500 since the beginning of the year. Similarly, the Dow Jones Industrials and the Russell 2000 are on a similar path. Despite the sharp improvement in the NASDAQ composite in the past few weeks, it remains well below yearend levels. Only the Dow and the Russell 2000 are above yearend levels.

Treasuries compete with corporate supply
The Treasury market faced an abundance of indicators which showed a weakening economy. Bond investors tend to prefer sluggish economic news because it enhances the possibility of aggressive Fed easing. The economic indicator gods were certainly kind to bond investors this week. Yields on Treasury securities did drop, but the decline is on the modest side by historical standards. It seems that Treasury securities are competing for investors as the supply of bonds has increased dramatically in the past couple of weeks. Corporate bonds are on the rise, as well as agency securities. Not only are investors interested in high-grade issues with low default risk, but demand for lower grade issues has also been on the rise.