New Top for Dow, Other Indices Fall Late; Gas at Record $3.10 per Gallon

The markets were cruising along in positive territory Monday until mid-day when everything began to slide. By the close, only the Dow remained on the plus side, setting another record high finish.

Dow 13,346.78 +20.56; NASDAQ 2,546.44 -15.78; S&P 500 1,503.15 -2.70; NYSE Composite 9,765.38 -21.65

It was a split decision in more ways than one. Declining issues beat advancers by a better than 2-1 margin, though new highs upticked to 386 against 116 new lows. There's a bit of churning going on as investors take profits, reassess and reinvest.

According to general assumptions, much of today's action was attributable to apprehension regarding the monthly release of the government's Consumer Price Index figures, the April numbers due out tomorrow morning prior to the market's open.

Advertise Your Business
Your ad could be on this blog or other popular web sites for $5 or less.
dtmagazine.com/customtext.html

Conventional wisdom seems to be that if the numbers are bad (i.e., they show an inflationary trend), the Fed may be influenced to do nothing, or worse, raise rates, when the markets are hoping for some easing. If the headline number comes in at 0.5% or less, with the core at 0.2%, that should allay investor fears, but anything over those figures will be cause for concern, especially at the Fed, which has vowed for years to keep inflation under control while failing miserably in the process.

Regardless of Fed performance, Bernanke and company has made reference to an "inflation target" of between 1 and 2 % (using the core number, of course, which excluded food and energy) and they will use the tried and true interest rate hike to cool off the economy should they determine inflationary risk to be at an intolerable level.

Whatever the Fed does has little to do with the fundamentals of individual stocks, though an interest rate increase would cast a significant pall over Wall Street. Most days are precarious for investors and speculators, though being in record territory does impart some peculiar thought processes. On the one hand, stocks are robust and the economic picture is rosy. Meanwhile, the pessimist sees this high-flying behavior an open invitation for everything to come crashing down.

In the long run, it's probably going to take an event more significant than a 25 basis point hike in the federal funds rate to stop the party.

Side notes: Sure enough, the only time I make a prediction on an individual stock, it goes the other way. On Wednesday of last week, I noted that Marvel Enterprises (MVL) may be considered for a long term hold. As of today, it has slipped nearly 3 points from where I called it a buy to 26.81. I called the stock with an 18-month upside in the 38-42 range. I suppose all I can do now is reiterate my position. At it's current level Marvel sports a forward P/E ratio around 17. It is shouting, "buy" now; any lower, it will be screaming. This is not a falling knife situation. Once options expire on Friday, expect a congenial rebound.

Lest I forget, oil grabbed a bid on a Saudi pledge not to increase production. It closed modestly higher, up 9 cents to $62.46, and every American must be grateful to our Vice President, Mr. Cheney, for all he did while in the Middle East last week. The Lundberg Survey quoted the national average for unleaded regular gas at an all-time high of $3.10 per gallon on Monday.

Tomorrow, May 15, is the date certain for the "American gas boycott" whereby we're not supposed to buy any gas. Nobody seriously expects the effort to have any effect at all, though the sentiment of millions will be with anyone who refrains for a day. A better solution would be to have a national no-driving day. That could be effective.

I have two suggestions. One is to stay home and drink Canadian beer. In most northern states, it can be had for about the same price per gallon as gas, and it goes into you, not your car. Plus, the effects on one's mental well being are far superior.

My second suggestion is for Big Oil to just skip $4/gallon and go straight to $5. They have shown no propensity to stop increasing the price, so why not just goose it up good? They can always lower it later on and look good by comparison.

Gold and silver were both off marginally. Somehow, their fates are tied to oil's, though the relationship has become tenuous at best.

When Numbers Have Meaning

The Dow Jones Industrial Average set a new closing high on Friday, May 11.

The number of new highs was 268 while new lows totaled 113. Advancing issues overwhelmed decliners 23-8.

Dow 13,326.22 +111.09: Nasdaq 2,562.22 +28.48; S&P 500 1,505.85 +14.38; NYSE Composite 9707.03 +117.66

The markets are becoming more defined but not prohibitive.

Oil, gold and silver showed marginal gains for the day. US equities remain a solid, if not significant, investment. The rally continues.

Broad Sell-off for US Stocks as Investors Take Profits

While some pundits may claim the sky was falling today and today's trade signals the end of the rally, others will point out that this kind of profit-taking pull-back is quite normal after such a long string of gains.

Just a day after the Fed decided to keep rates unchanged, the Census Bureau and the Bureau of Economic Analysis of the Department of Commerce announced that the US trade deficit increased to $63.9 billion in March, up from a revised $57.9 billion in February.

Loan Calculator

The news was a little surprising though hardly exceptional.

What certainly worried Wall Street more were the string of dismal figures coming in from retailers, which showed April same-store sales falling sharply from the same period a year ago. Topping the list was the nation's largest retailer, Wal-Mart (WMT), which reported a decline of 3.5%. Other notables reporting sluggish sales below last year's levels included JC Penny (JCP), Federated (FD), the Gap (GPS), and Nordstrom (JWN).

Accordingly, investors headed for the exits in many of the retailers, though Wal-Mart escaped with merely an 0.18 loss. Analysts defended the numbers, citing an early Easter and an unusually cold April, especially in the population-dense Northeast.

Dow 13,215.13 -147.74; NASDAQ 2,533.74 -42.60; S&P 500 1,491.47 -21.11; NYSE Composite 9,669.37 -158.56

While the retail numbers and increased trade deficit are causes for concern, most believe the US economy to be in relatively sound shape, though overall growth is expected to stall out at around 1.5 - 2 percent for all of 2007. Such a projection is hardly surprising, considering the slowdown in housing and high fuel prices, both having negative effects on consumers and, ultimately, business.

The serious concern is that the US economy could fall into recession, actually contracting instead of expanding. Current wisdom sees that as a remote possibility. Former Fed Chairman Alan Greenspan gave it a 1 in 3 chance of occurring in 2007. Other economics experts are of similar mind, though calls for the Fed to reduce interest rates are growing louder.

A few more negative signals may induce Ben Bernanke and the FOMC to drop the federal funds rate a quarter point at their next meeting in late June, though most believe the Chairman will move slowly and cautiously, keeping one eye on inflation and the other on the overall health of the economy.

Putting today's action into perspective, it has to be respected that the markets have been on quite a roll, with the Dow rising over 1000 points in less than 2 months. Corporate profits are still strong and the business environment is probably the most lax and calm as it's ever been. Regulators and government interference has been cut to minimal under the pro-business Republican reign. That influence may be waning, though a dramatic shift under Democrats is unlikely as they too receive most of their campaign money from big business.

Declining issues far outpaced advancers, by a 7-2 ratio. New highs remained positive, though less than has been the norm. There were 263 issues making new highs with 121 reaching new lows - the first time in two weeks that the number of new lows have surpassed 100.

Oil edged higher, adding 26 cents to the cost of a barrel, ending the day at $61.81. Gold continued to slide, losing a substantial $15.50 on the day, ending at $667.00. Silver also sold off, though not in such a dramatic fashion, losing .33 to close at 13.14.

Both of the metals have flirted with breakouts recently and failed. Oil, on the other hand, may be headed into a stabilizing period. With high gas prices seen as a major threat to the economy, the US Congress has made noises about investigations and windfall profits taxes, so it may be about time for the Big Oil cartel to back down on its over-aggressive appetite for US greenbacks.

There has been good news from overseas, though few have noticed. After reaching lows against the Yen, Euro and British Pound, the US Dollar has recently shown some resolve and gained strength against most of our major trading partners. Apparently, the world's currency standard still has some muscle.

Fed Leaves Rates Unchanged; Dow Soars Again

As expected, the FOMC of the Federal Reserve decided to leave rates unchanged on Wednesday, marking the 7th consecutive meeting the Fed has issued no change in the federal funds rate.

Immediately following the announcement, stocks gyrated, with the Dow zig-zagging in a 50 point range before finally heading higher into the close, setting yet another record. The S&P moved to within 15 points of its all-time high. Despite the Fed offering no surprises, markets reacted positively, as has been the norm of late.

Dow 13,362.87 +53.80; NASDAQ 2,576.34 +4.59; S&P 500 1,512.58 +4.86; NYSE Composite 9,827.93 +39.90

With all eyes on the Fed, there was little else to move markets and volume was moderate.

Advancing issues held sway, beating decliners by an 8-5 margin. New highs outdid new lows 449-71, evidence that investor appetites have not yet been sated.

Possibly the best of the day's news came from the US Department of Energy, which said that stocks of gasoline rose by 400,000 barrels in the week ending May 4. Analysts had forecast a rise of 150,000. The inventory increase was the first in 13 weeks. Crude sold into the news, losing 79 cents to end the day at a moderate $61.47. With heightened demand of the summer driving season looming, this comes as welcome news and could spark a bit of easing of the price at the pump for US drivers.

Keeping with the theme, gold lost $4.90 to $682.50, while silver continued to slide, down another 13 cents to $13.47.

With earnings mostly out of the way and the next Fed meeting not for another 7 weeks, investors will focus on fundamentals and economic news. In the interim, the pace of gains should moderate, as the markets have been red hot of late.

A Little Savings for a Rainy Day

Since the advent of widespread use of the internet circa 1997, individual investors have all but abandoned traditional savings in favor of online trading, which is quick, easy and cheap.

The trouble with investing is that sometimes capital can be tied up for years, borrowed against or outright lost. Therein lies the American dilemma: the lowest savings rate in more than 70 years.

The previous generation of savers and investors - many of whom lived through the rigors of the Great Depression - was more inclined to save rather than invest, but Baby Boomers have lived a life of relative comfort, absent large scale economic catastrophe. Various recessions and the stagflation of the 70s accounted for about the worst of times for the current generation.

Lately, however, there's been a push to devote funds to actual savings - as in savings accounts - as a barrage of banks and other financial institutions have begun offering attractive interest rates on savings.

SavingsAccounts.com affords consumers the opportunity to review the merits of some of the best savings account offers online. The recently launched site features short reviews with links to mostly online banks like FNBO Direct, Wells Fargo, HSBC, AmTrust, Emigrant Direct and others, offering interest rates ranging from 2.75 to as high as 6%.

It's a good place to start or expand your saving regimen as that rainy day seldom announces itself far in advance.

Sponsored Post