Comparing Cross-Market Performance for 2008

Jan 6, 2009: 11:13 AM CST

With 2008 firmly behind us, I thought it would be beneficial to compare the performance of the S&P 500, US Dollar Index, 10 Year Note Price, and CRB Commodity Index to see how these markets were related in their moves throughout 2008.

Cross-Market Comparison for 2008:

Using a customized template in StockCharts.com’s “PerfChart” section, I am comparing the $SPX, $CRB, $USD, and $UST to note inter-relationships and correlations.

Here is the result at the end of the year, which carries less importance than the trend through the year:

S&P 500 (red):  -40%
CRB Commodity (blue):  -40%
US Dollar Index (green):  +5%
10 Year T-Note Price (purple):  +11%

Now, let’s dig deeper and view the relationships for the year.

As expected, the Commodity Index (CRB) and the US Dollar Index trended opposite (inverse) each other for the year, though the CRB both rose and fell (fluctuated) greater than the Dollar Index.

The CRB began to correlate positively with the S&P 500 for a majority of the year which was interesting.  Generally higher commodity prices are seen as inflationary which is bearish for the stock market and falling commodities are deflationary (prices getting cheaper) which generally benefits the stock market, though in 2008, we saw sharp declines in both indexes after July.

In fact, July was the turning-point for 2008, when the CRB Commodity Index (along with Crude Oil and Gold) ‘topped’ and the US Dollar Index “bottomed,” and the reversal continued until the end of the year, severely damaging commodity prices to levels unexpected by many analysts.

In a falling stock market, one would expect Bonds and Treasury Notes (prices) to perform extremely well both as rates are cut (driving prices higher) and investors flee stocks and buy bonds/notes.  Surprisingly, a massive rise in treasury prices did not occur until November of 2008, in which case prices surged almost to bubble level.  Price spent the majority of 2008 in the range of 0% to +5% until the final two months which witnessed a 10% surge.

Finally, though the US Dollar Index remained under pressure for the last few years, 2008 saw the dollar stage a mid-year comeback which was a counter-trend move in a larger downtrend structure.  Analysts note that the rise was not due to the wonders of the US Dollar, but that in FOREX, currencies are quoted relative to each other, and most of the other countries’ currencies in the Dollar Index fell faster than the US Dollar, thus creating the rise… which also hurt commodity prices.  In sum, the US Economy is contracting less than overseas economies… or stated differently, overseas economies are falling harder/faster than the United States.

Though there will be major themes arising from 2008, one of the most surprising in my mind was the dramatic and relentless fall of commodity prices generally across the board in the latter part of 2008.  One also cannot ‘write-off’ the fact that the S&P 500 fell roughly 40% in a single year, and fell peak to (current) trough over 50% from the October 2007 highs, massively devastating shareholder equity.

It is against this backdrop that we enter the new year of 2009.

Corey Rosenbloom
Afraid to Trade.com

4 Comments

4 Responses to “Comparing Cross-Market Performance for 2008”

  1. dacian Says:

    I agree on the speed of commodities falling. As for the USD, is not that other economies are falling harder than US (in fact most don’t if you think about it). It’s the market expectations that they’ll do poorly, as the US is the dog and the rest the tail; that might reverse some time in the coming decades. There is also expectations the US will lead the way out of the recession, which I personally doubt. Emerging markets is the key, as our economies (I’m in Europe) and consumer is dead for years (I mean really anemic). Another aspect is the USD it actually crashed already if you look on its long term chart (and I know you did in a previous post); it spent years in a bear market (I know as well you suggest that isn’t over and wave 5 is coming for it; I personally see it trade in a range for 2009).

  2. Corey Rosenbloom Says:

    Dacian,

    True, I should have clarified “expectations” rather than described economies. Markets are driven more now by expectation than perceived reality.

    This is a global downturn and currency crosses are still quoted in relative terms.

    If you state that XYZ had ‘relative strength’ in 2008 to the S&P 500, that’s great for XYZ Corp but both of them fell in real value. You might have lost $50,000 in the SPY but you only lost $40,000 in XYZ which performed ‘relatively better,’ though again they both fell.

    With everyone falling, the expectation is that the US will not fall as hard – might be true, but that is being built into price right now. Time will tell though.

  3. toad37 Says:

    I hate to say it, but look for more of the same in 2009. Deflation is a bummer. 🙁

  4. Corey Rosenbloom Says:

    It seems great when gas falls from $4.30 a gallon to $1.50 and I’m sure we’re all excited about that but prices falling too quickly isn’t good either. It’s a strange place to be on the other side of the sword.