Recap of US Markets

Would Prozac help?

Equity investors are simply blue. Earnings are not gathering any momentum and the number of friendly economic numbers are simply insufficient. The employment report was particularly soggy. Until a couple of weeks ago, the small cap sector was managing to avoid the dramatic declines posted in the rest of the market. But in the past couple of weeks, the Russell 2000 has also declined significantly. (Incidentally, the Russell 2000 will soon go through its annual revision. Preliminary additions and deletions that were announced June 7 go into effect on July 1. Final membership lists will be announced on July 9 for the entire family of Russell indexes.)

Short and long term yields diverge

Judging from the week’s collapse in stock prices, one would expect to have seen a pretty good rally in Treasury prices in the first week of June. In fact, yields on the 2-year and 5-year notes are down modestly from last Friday. However, yields on the 10-year and 30-year securities are actually up a couple of basis points. It is possible that the shorter term instruments are serving as safe-havens, but the longer term securities reflect bond investors’ fear that inflationary pressures will develop if the Fed doesn’t start raising the federal funds target soon.