The missing link in the financial market recovery from the early October lows has been corporate bonds, especially lower quality bonds.  While Corporate bond prices have risen in the last month, the spread between corporate bond yields and treasuries has barely narrowed (see the Weekly Chart on page 2).  We are not yet alarmed by this data, but we will continue to monitor the spreads going forward.  We believe that the continued widening of spreads largely reflects the amount of corporate debt issued by the oil, gas, and mining sectors prior to the plunge a year ago in commodity prices.  Indeed, the performance of corporate bonds in those sectors is mirrored by their persistent decline in the stock market.

David Fuller's view

Here is The Weekly View.

Subscribers are likely to be interested in the graphic referred to above.

The commodity sector is interesting and potentially in a bottoming phase.  However, every cycle for volatile producers of industrial resources includes a clearout of often fledgling marginal miners and oil companies, which lack the cash flow to survive.  If interested in this sector, I would stick with the leaders, especially those with a good chance of maintaining their dividends.  The more speculative companies which survive will eventually outperform and can be picked up when the sector is clearly recovering.  However, evaluating them successfully near a market trough can be equivalent to a lottery.