Written by Admin | Sep 2, 2008 4:00:00 AM
The big news of the day is oil's big decline -- likely a result of Gustav's failure to bring the level of destruction originally feared in our country's largest concentration of refinery capacity. While oil has recovered somewhat off its intra day lows, the price is still down 5% today, just below $110 per barrel. The markets initially opened up very strongly on the news, but started to fade during the afternoon hours with many indices now down between .5 and 1.5%.
It is difficult to guess why the response to lower oil has been negative, but the market often makes short term moves that don't appear logical. On the positive front, most of the economic news has been pretty decent, with the ISM manufacturing index largely in line and Q2 GDP revisions last Friday showing growth of 3.3%. This latter figure is a far cry from recessionary levels, in spite of rising unemployment and the Presidential campaign, which tends to focus on the negatives.
Oil clearly violated its upward channel trend with today's decline, likely sparking today's knee jerk selling action in nearly everything else. While consumer related stocks are catching decent bids, today's overall weakness suggests that new leadership has yet to emerge.
To some extent, that makes sense. It seems a bit silly, after all, to think that a hurricane could have a bigger impact in keeping oil prices up in recent days than global economic softness has had in keeping them under pressure. If the weather is really what's driving oil, then the four new storms brewing in the Caribbean will certainly keep traders on their toes.
To us, the economic fundamentals dictate that a continued decline in oil is likely. Consumer and technology shares will likely be the new beneficiaries but at least as of today, the leadership is neither awe inspiring or commanding. Stay tuned.