While in recent weeks the market seemed to blissfully ignore negative data, this past week the market experienced some of its biggest declines since February. The main factor pushing down the markets was the record high oil prices which are hurting everyone from airlines like American Airlines [[amr]] which is cutting US routes by 12%, to clothing stores like GAP [[gps]] where sales dropped 4.8% as consumers struggle to pay for bare necessities, much less luxuries. Also weighing on the market is another negative record - record housing inventories, which indicate that the housing market may take longer than expected to recover.

With all this bad news, jittery investors who have made a buck or two in the last few weeks have started taking money off the table, sending the Dow down by 3.91% for the week, the S&P 500 down by 3.47% and the Nasdaq down by 3.33%. Among the biggest losers were GM [[gm]] & Ford [[f]] down by around 15% each as the reality of less car sales due to rising oil prices started sinking in. Microsoft [[msft]] fell by 7% as investors who previously punished it for making the Yahoo [[yhoo]] offer were now punishing it for not closing the deal. Not to be outdone, the airlines also took a nosedive, with Continental Airlines [[cal]] down over 8% and United Airlines [[ual]] falling by 7.7%.

The financial sector also took some serious hits. Citigroup [[c]] shares plunged by over 11% on concerns that there may be some major skeletons from the subprime era still in its massive closets. JPMorgan [[jpm]] fell by over 9% and Moody’s downgrade of AIG’s [[aig]] sent AIG’s shares down nearly 7%.

For his part Warren Buffett said banks were to blame for the subprime mess, saying they “exposed themselves too much, they took on too much risk …. It’s their fault.” He was upbeat about the future though, saying “I don’t think the situation will get worse in financial markets. General conditions in the business world will get worse, but it will only last a while.”

Looking forward to the week ahead, there are earnings announcements from computer maker Dell [[dell]], retailers Cotsco [[cost]] & Sears [[shld]], food giant Heinz [[hnz]], jeweller Tiffany [[tif]], oil giant Exxon Mobile [[xom]], and JPMorgan’s new toy Bear Stearns [[bsc]]. Earnings numbers for the retailers will give another indication of consumer spending on mid-range goods, and Tiffany’s earnings will give a feel to the luxury side of the market. Exxon Mobile and Bear Stearns will also be holding their annual meetings this week and it will be interesting to see what they have to say. Look out for what Exxon Mobile might say about the current oil situation, especially about whether their refineries are making less margin as the spread between crude and gasoline prices tightens. As for Bear Stearns, they’ve got a lot of explaining to do.

Posted in Categories: Stocks, USA.

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Comment by BxCapricorn

2008-05-25 21:43:05

Nice post. Good guide of what to buy and avoid, in terms of sectors. When the consumer numbers disappoint once again, maybe then the retails and consumer dependent (domestic) stocks will discover their destiny.

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