The Dow Jones Industrial Average declined for the fifth day on a row on Thursday, with investors in what appears to be a holding pattern prior to the presidential inauguration. Though the major market averages traded marginally higher for the first 30 minutes of the trading day, the averages spent the remainder of the day in negative territory. For U.S. large company stocks it was an uneventful day with the Standard & Poor’s 500 shedding 0.36 percent and the Nasdaq Composite losing 0.28 percent by the markets close. However, liquidity in the stock market has been drying up as we get closer to the inauguration, such that U.S. smaller company stocks continued to erode on Thursday with the Russell 2000 index falling 0.94 percent.
This week’s rising political tensions in Washington, D.C., may be playing a part in the stock market’s recent hesitation, so the lack of liquidity in stocks could change by next week. One sign that investors are cautious and not fearful heading into the inauguration is the recent decline in bond prices. When investors are nervous about the future, money tends to move into high quality bonds. However, for the second day in a row bond prices have declined, changing their short term trend to officially downward, with the ICE 20+Year U.S. Treasury Bond index falling 0.69 percent on the day.
This week the top performing area of the bond market has a common theme and that is foreign bonds. Investments in foreign currencies get a boost when the U.S. dollar falls in value like it did this week. For the week, the top performing bond index was the Citi International Inflation Linked Securities index up 0.34 percent over the past five trading days, followed by the S&P/Citigroup International Treasury Bond index Ex-US higher by 0.25 percent over the same period.