Monday, September 11, 2006

Corporate Bond Market Optimism

Overall, this was a solid session for the market. We shook off the early weakness and avoided another distribution day. And the gains in tech and retail more than offset the severe weakness in energy.

I get the sense that many investors are taking the last of their profits in energy and rolling them into other growth areas, including retail, healthcare, and technology. I think this is a healthy trend, and should continue into year-end.

Tomorrow morning, Goldman Sachs (GS) reports earnings, and should give us an early glimpse of what earnings for the group could look like for Q3. As I have said, I would be a buyer on any weakness.

Last week, we saw a surge in corporate bond issuance, and it was very well received. Yet stock investors don't seem to care. This is a big difference between now and 2001, when the corporate bond market was more worried than the stock market.

MS Howells has done a lot of work on this area, and the optimism in the corporate bond market right now makes it more likely that stocks will again go to new highs on the heels of a wave of mergers, buybacks, and LBOs.

long GS


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