Friends
As the Libyan situation continues to be in the forefront of trader’s minds, every rumor sends the market careening in one direction or another. Yesterday we first heard that Gadhafi had chemical weapons ready to be used. Market goes down. Later in the day we get a rumor that Gadhafi has been shot. Market goes up. This morning we hear that Gadhafi’s son says that they would never sabotage their oil fields. Market futures go up. I suppose we are going to have to deal with this for the time being, as markets will tend to react to every rumor or piece of news that we get out of Libya, or Saudi Arabia for that matter.
What everyone is concerned with, of course, is oil prices and specifically how domestic gasoline prices will be affected. Higher gas prices would definitely be a threat to economic growth, and a lot of the progress that we have made over the past year in terms of the domestic economy would be in jeopardy should gas prices continue to rise. For now, stocks will be reacting to the price of oil. If somehow the Libyan situation gets resolved and oil prices settle, we then should see traders return their focus back to corporate earnings and Fed policy. After moving to the $103 a barrel level early yesterday, NYMEX crude is trading just above $96 early this morning.
The market averages are dancing around some interesting “round number” support levels with the S&P 500 holding above 1300 and the Dow Jones Industrial Average holding about 12,000 in pre-market trading. Bulls would like to see the S&P hold the 1295 level in the short run. In terms of individual issues, energy stocks have obviously been the big winners this week as economically sensitive stocks have been the most affected to the downside. Consumer staples (as we refer to as defensive stocks) have been largely unaffected price wise. The other major story affecting consumer related stocks is the inflationary effects of rising prices of cotton, corn, wheat, sugar etc. on companies that produce or sell clothing or food items. This is causing many companies to warn that profitability is going to be challenged as the year goes on if these prices don’t recede. Those companies that can pass on these cost to the consumer will be able to maintain their profitability. But those who, because of competitive disadvantages, can’t pass on the cost will suffer. This story will continue to develop this year as investors will have to separate the winners from the losers.
In the meantime, we will continue to monitor the situation in Libya and its effects on the markets. If there are major developments, we will be in touch.
Have a nice weekend everyone.
