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BOTTOM LINE: Overall, last week's market performance was negative considering the rise in long-term rates, mixed economic data and mostly lower energy prices. The advance/decline line fell, almost every sector declined and volume was above average on the week. Measures of investor anxiety were mostly higher. Moreover, the AAII % Bulls fell sharply for the week and is now below average levels, which is a big positive. One more short period of weakness for equities is possible, however stocks have likely seen their lows for the year. I continue to believe the major averages will finish the year strongly. The average 30-year mortgage rate rose to 6.03%, but is still only 82 basis points above all-time lows set in June 2003 and slightly lower than 2005 highs of 6.04% set in April. The benchmark 10-year T-note yield rose 11 basis points on the week as investors worried high energy prices would eventually lead to higher inflation. I continue to believe it is very reckless for the Fed to speak incessantly about inflation considering it is only near average levels by historic standards and a large component of inflation is expectations. There is little evidence that companies are able to pass along higher raw materials prices to consumers at this point. The US dollar rose on the week, spurred by expectations of higher interest rates. The strength in the dollar led to profit-taking in gold. Unleaded Gas futures have now plunged almost 45% since September highs even as refinery utilization remains well below normal. Moreover, natural gas saw another inventory build this week even as a substantial amount of daily Gulf of Mexico production remains shut-in. Natural Gas supplies are now about 2% above the five-year average for this time of the year heading into the winter. I continue to believe global energy demand destruction, which began a number of months ago, has accelerated meaningfully over the last few weeks and will send energy prices substantially lower over the intermediate-term.
*5-day % Change
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