WEAK GDP FIGURE BOOSTS BONDS AND SINKS STOCKS -- DROP IN RATES PUSHES DOLLAR TO RECORD LOW AND COMMODITIES TO RECORD HIGH

WEAK ECONOMIC NEWS FAVORS BONDS OVER STOCKS... On Tuesday, I wrote about the fact that bonds were pulling back to test their 50-day "support" line, while the Dow and S&P 500 were bouncing toward their 50-day "resistance" line. I also suggested that the bond/stock ratio (which has favored bonds since last summer) was testing support. Based on today's early action, it looks like the bond rally is resuming while the stock bounce may be failing. Today's report that fourth quarter GDP rose only 0.6% (and a jump in jobless claims) is pushing bond prices higher and stocks lower. Chart 1 shows the S&P 500 falling more than 1% this morning and appearing to fail at its 50-day moving line at 1388. At the same time, the 7-10 Year Treasury Bond ETF (Chart 2) is bouncing sharply off of its 50-day line. Chart 3 shows the IEF/SPX ratio bouncing off its 50-day average which keeps the bond/stock ratio in an uptrend. Today's biggest stock losers are financials and consumer discretionary stocks. Winners include commodity-related stocks in energy and precious metals. That's partially the result of another record low in the U.S. Dollar. Here's the plot. Continued economic weakness is forcing the Fed to keep lowering short-term rates. Falling U.S. rates are pushing the U.S. Dollar to new lows. The combination of falling rates and a weak dollar are pushing commodities higher. We'll see how things look later in the day.

Chart 1

Chart 2

Chart 3