With the recent unrest in Egypt, Libya, and some other nations, the market and the economy have made movements in both directions (positive and negative). Commodities, like silver (which hit a record for the past two decades), gold, and oil are rising. Meanwhile, many stocks, after enjoying some gains, have once more fallen because of various factors, including speculator frenzy.
On a similar note, an article in the Philadelphia Inquirer mentioned that "Higher oil prices also weigh on the U.S. economy by increasing the costs of moving goods and filling gas tanks. A sustained $10 increase in the price of oil translates into a 0.2 percent cut in economic growth over 12 months, according to a recent estimate by economists at Goldman Sachs." With the turmoil in the Middle East and Africa, it seems like oil prices are destined to continue their increase. According to the article, this would mean economic growth will continue to decrease. How will this affect stocks? In general, less economic growth would mean less jobs, less expansion, and less GDP. One would think that we are destined to see further declines in the market as a whole. What does everyone else think of all this? Do you see the need to adjust your strategy and possibly look into stocks that perform better when the market declines?
Source:
http://www.philly.com/philly/business/20110226_Markets_rise_but_still_end_the_week_off_about_2_pct_.html
Higher gasoline prices = less money individuals would be spending elsewhere - such a popular argument that has often been made. Let's remember, a majority of GDP stems from consumer spending. So with this said, lots of consumer discretionary names were probably hurt last week. Couple this with rising prices for raw materials, analysts and investors have a lot to consider going forward.
ReplyDeleteWhat many will be looking at is commentary from management regarding how companies will absorb such price increases (e.g. transportation costs) and whether or not companies will be passing on rising commodity prices to consumers, which arguably is likely.
Investors should remember to stay diversified across different sectors. Portfolios that have exposure to energy may have performed well last week relative to the broader market. However, portfolios with no exposure to energy may have underperformed.
I was happy to see this, because I have actually thought a lot about this. Clearly gas prices are destined to soar, this was a big factor on the economy when the country hit a recession. I believe that gas prices alone will have a very negative affect on growth and will continue the rough times in our country. From this point it becomes a snowball effect. Many stocks will probably go down and from this and the governments approval ratings will drop as will. This again will only hurt economic growth and recovery. I highly doubt that we are going to see lots of job creation of these problems continue. I agree that diversification is key, but I also think that shifting along with macroscopic events is very necessary too. Valiant Management has talked about changing stocks, because we see that our stocks are tapping out, and lots of stocks (like oil) are going up. To only invest in what looks good or sounds good is silly, macroscopic events should play a role in smart investing. Although aspects of the economy seemed destined to drop, there are obvious places to make substantial growth off of this as well.
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