Commodity Stocks Lead Market Higher

Today is one of those days where the market is higher but nobody seems to know why.  So I did a little detective work.

The first thing is that it’s only two groups that are really up big: basic materials (+2.96%) and energy (+3.12%). 

Everything else is having a middling day and financials are down a bit (-.45%) on news that Credit Suisse (CS) estimates a $2.85 billion fair value reduction in some of its asset backed securities (CS Press Release).

The reason basic materials and energy are up big, leading the overall market higher, is a an agreement about 2008 iron ore prices made between Brazil’s Compania Vale Rio Doce (RIO) and a number of Asian steel producers.  The agreement calls for a 65 percent increase in iron ore prices in 2008 (“Record iron ore price increases expected after Vale’s deal”, The Independent, February 19, 2008).

Investors are taking this is a sign that demand for commodities across the board will remain strong in 2008.  That’s why we’re getting such a big move in commodities makers (RIO: +6.31%, BHP: +5.71%, FCX: +5.20%, RTP: +5.48%), which is pulling the entire market higher.

That’s the big story driving today’s action.

UPDATE (Tue 2/19, 12:55pm PST): Also see Bob Pisani “Commodities Surge – But Look At The Reasons” (Tue 2/19, 11:57am PST).