Surging oil prices are threatening the market
May 19, 2008
On Wall Street Stocks ended the week with a positive return despite the surging oil prices and another decline in consumer confidence, which was hitting 59.5 in the preliminary report from Reuters (the weakest value seen since June 1980.) Investors were encouraged however by a report from the Commerce Department that showed that April's new home construction rose 8.2%. Regardless, the report was not sufficient enough to suppress investors’ concerns about rising energy prices and how they will influence consumer spending. The surging oil prices continue to show on the front page headlines. Crude oil futures for June rallied $2.17 to close at a record $126.29 a barrel after spiking to $127.82 earlier in the Friday session. Looking to the second half of the year, Goldman Sachs forecasts a likely rise to an average of $141 a barrel, making cheap oil a thing of the past.
In corporate news, Autodesk (ADSK) reported that its first-quarter profits soared 14% compared to the previous year. A number of retailers also reported better-than-expected earnings, including Kohl’s (KSS) and Abercrombie & Fitch (ANF). The teen retailer Abercrombie & Fitch Co. (ANF) announced Friday that its first-quarter earnings rose 3 percent from one year ago, with stronger sales. Abercrombie profits rose to $62.1 million in the three months ending May 3, compared with profits of $60.1 million for the same quarter a year ago. Sales rose even more dramatically, 8 percent, to $800.1 million from $742.4 million last year. Despite the encouraging earning increase, sales of older stores, those which were open more than a year ago and are considered to be a key indicator of a retailer's strength, fell 3 percent and reduced the confidence in the company's growth prospects.
To sum things up, the apparent recovery of the construction of new homes in April seems encouraging after a steep March slump that had building activity at the slowest pace it has seen in 17 years. The increase of about 8% in April is higher than in March of 2008 but is almost 30% below April of 2007. One has to remember that due to monthly and seasonal changes it may require up to six months to evaluate whether the increase is constants. Regardless, whether this rebound persists or is temporary, the soaring energy prices could cause a stronger negative influence, leading to a decrease in consumer spending in the future and sending the market further down. In any case, this is a great period to sharpen your trading skills in the one place where your investments will always be safe – Yalicoo’s competitions.
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Yalicoo’s highlights of last week
SC14 is increasing the gap from BanderaS (16.04%), passing the 20 percent barrier and currently has a return of 22.42% in the
monthly competition. After selling all of his gainers last week with higher profits, SC14's portfolio is currently empty. Agent, dropped to fifth place while bsmatteo (15.68%) took the third place, while also having no stocks in his portfolio right now.
On the other hand, the additional top three players in the
monthly competition, BanderaS, bsmatteo and good (15.38%), are holding at least 10 stocks in their portfolios (mostly energy stocks.) As we pointed out in the previous section, the surging oil prices can strongly influence the market's behavior, possibly sending most of the sectors down while the energy stocks will continue rising. Are SC14 and agent predicting an immediate decline in the indexes values right at the beginning of this week? Let’s watch their moves closely and see how things develop.
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