Excellent WSJ Article On The Sentiment Shift

Some market participants are beginning to wonder whether the last convulsion of turmoil in March – when Bears Stearns Cos. nearly collapsed, J.P. Morgan Chase & Co. stepped in to save it and the Federal Reserve announced emergency measures – marked a final washout.

– From “Risk Aversion Abates, a Bit, as Investors Test the Markets” (subscription required), The Wall Street Journal, Monday April 28, C1

The trick for investors is to figure out whether what they are seeing is a mirage….. I think this is a head fake.

Jason Trennert (subscription required), Chief Investment Officer, Strategas Research Partners LLC

An excellent article (subscription required) in The Wall Street Journal today provides an overview of the massive shift in sentiment we’ve seen over the last 6 weeks, since the acquisition/bailout of Bear Sterans.  For the most part I’ve been going over all this stuff for awhile here:

  • S&P has rallied about 11% over the last 6 weeks
  • Investors have sold safe haven US Treasuries, pushing the yield on the 2 year note from a low of 1.33% on March 17th to 2.42% at the close last Friday
  • Investors have sold off gold, another traditional safe haven, with gold closing below $900 last week
  • Spreads on investment grade and junk rated corporate debt are narrowing, signalling investors willingness to buy these issues
  • Merrill Lynch has rallied 33% since March 17th and Citigroup and Lehman Brothers more than 40%; other financial stocks have also performed well

One thing I didn’t know was that Cadbury-Schweppes was able to issue $1.7 billion in just above junk rated debt to spinoff its Dr Pepper Snapple Group business.  This deal has been in the works for a while and it finally got done on Friday.

Merrill, B of A and Citi also raised a bunch of money last week through preferred stock sales: $2.55 billion, $4 billion and $6 billion respectively.  This again signals investors willingness to put money to work in risky issues.

It has been a truly interesting shift in market sentiment and this article does an excellent job of reviewing it.  Anybody who wants to read it, send me an e-mail and I’ll send you a link.

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