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Strange signals:

U.S. Stocks, Gold Contrast With Bonds on Recession Repeat: Chart of Day

The best September for U.S. stocks since 1939, record gold prices, copper at a five-month high and tighter credit spreads are sending a bullish signal about the economy that?s in contrast to the pessimism in the Treasury market, according to Strategas Research Partners.

The CHART OF THE DAY shows the Standard & Poor?s 500 Index and gold and copper prices have each climbed higher in September, while the yield on 10-year Treasuries remains near its record low of 2.0352 percent. The spread between investment- grade corporate bonds and government bonds has also tightened to 177 basis points from more than 700 at the start of 2009, according to Bank of America Merrill Lynch and Bloomberg data.

The dichotomy of the Treasuries? low yield compared with the equities and commodities markets shows a difference of opinion about whether the world?s largest economy will enter its second recession in three years. August reports beat estimates for nonfarm payrolls and durable goods excluding transportation equipment, while the Federal Reserve said this month sluggish growth and the risk of deflation may prompt further steps to ease monetary policy.

?We can?t call a situation where stocks, bonds and gold all work at the same time a stable macroeconomic equilibrium,? a group of analysts led by Jason Trennert, chief investment strategist at Strategas Research Partners, wrote in a note yesterday. ?One could guess that the potential for future quantitative easing on the part of the Fed has dissuaded many speculators from betting against bonds and emboldened them to buy risk-assets.?

The S&P 500 has fluctuated between its 2010 high of 1,217.28, reached April 23, and the July 2 low of 1,022.58, as better-than-projected corporate profits contrasted with government reports signaling a slower economic recovery. Gold climbed to $1,301.60 an ounce last week to mark the record high, while copper advanced to $3.644 per pound, the highest price in five months.

The U.S. gross domestic product expanded at a 1.9 percent annual rate this quarter and will expand 2.3 percent in the October-to-December period, according to the average forecast of 63 economists surveyed by Bloomberg. Earnings at S&P 500 companies will rise an average 24 percent and 31 percent in the same quarters, respectively, according to analyst estimates.

http://www.bloomberg.com/news/2010-09-28/u-s-stocks-gold-contrast-with-bonds-on-recession-repeat-chart-of-day.html