Market Supported by Downward Trend in Oil Prices
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After a stellar performance which saw the Dow Jones Industrial Average gain 3.6% in the week ending July 18,2008, the market took a breather last week, but not without a jolt on Thursday when the DJIA fell 283 points. It recouped 21.41 points on Friday to finish the week off 1.1% at 11370.09.
What seems to be giving the market a little bit of footing is the continued downward trend in oil prices. Oil futures ended at a seven-week low of $123.26 a barrel in New York, down 4.8% on the week. Apparently the commodity traders believe that fuel prices have gotten high enough to cause a lasting drop in demand. That demand has fallen was substantiated by a rise in oil inventories over the past month.
However, Thursday's jolt, when the Dow slid 283.10 points, came on negative home data from the National Association of Realtors. The NAR reported a larger-than-expected drop in sales of existing homes in June to a 10-year low. Prices fell 6.1% from a year earlier, the fifth largest drop on record. And even though new home sales reported on Friday were better than expected, they still fell 2.6% to a 10-year low. Many analysts don't see a sustained rally in stocks until there are signs of recovery in housing.
Despite the continuing pall spread by the housing market, consumer sentiment, as reported by the University of Michigan, was up in July. Though it remains at a relatively low level, it hit a reading of 61.2, up from 56.6 reported in June. Whether a positive trend will develop will depend on a turn in rising gas prices, food prices and the shaky job market.
Another surprising piece of positive news last week came in durable goods orders. New orders for U.S.-made capital goods were up in June, signaling that some businesses were still spending despite headwinds from the credit crunch and housing recession. New orders for primary metals, machinery and electrical equipment were up 0.8%, the Commerce Department reported. Although much of the increase in June was defense related, orders for core capital equipment - the best monthly gauge of business investment - rose 1.4% after falling 0.1% in May.
Perhaps the most encouraging aspect of last week's events was the drop in oil prices and the rise in oil inventories. This was not due to all the rhetoric about alternative fuels, renewable energy sources or the actual drilling for oil in former out-of-bounds areas. It was due to good old fashioned conservation. The resourcefulness of the American public and its ability to adjust to adversity is remarkable. Just ask those of us old enough to remember world war two.
In the meantime, be sure to keep your risk within your tolerance and keep ahead of inflation.
I invite your questions.
Or Contact Jerry Cole at:
509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation or of www.mybaycity.com)509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
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