Stock Market Update - Mon Oct 29 16:25:01 EDT 2007
[BRIEFING.COM] The dollar was weak and oil prices were up on Monday. Those developments might lead one to assume that the stock market went down. That assumption, though, would be wrong. The equity market basically picked up where it left off last week and traded higher in the face of these seemingly negative developments.
Regular readers of Briefing.com know that we don't put much stock in the weak dollar-weak stock market argument. In fact, we have argued that a moderate downtrend in the dollar is bullish for the stock market since it boosts the earnings of multinational companies and makes U.S. exports more competitive.
Granted the weak dollar is contributing to the rise in oil prices, but thus far, the consumer has been pretty impervious to the high prices thanks to rising personal incomes that are a byproduct of a tight labor market.
There are lingering concerns, of course, that rising oil prices will soon undercut the consumer given the housing sector recession, but those concerns were tabled on Monday as the stock market extended recent gains with oil prices topping $93 per barrel.
The latest move in oil (+1.8% to $93.53) followed news that Mexico shut down a fifth of its production (600k barrels per day) due to bad weather in the Gulf of Mexico.
Not surprisingly, the energy sector (+0.7%) was a relative strength leader today. The transports, on the other hand, trailed the action in noticeable fashion, but strikingly, the consumer discretionary sector (+0.3%) managed a gain on Monday thanks to many retailers and homebuilding stocks.
The resilient showing by the equity market can be attributed in part to the market's optimism that the FOMC will cut interest rates again at this week's meeting so as to prevent a recession from occurring. Briefing.com sides with the expectation that the fed funds rate will be cut by 25 basis points on Wednesday to 4.75%.
Despite the rate cut hopes, the financial sector (-0.1%) was a laggard in Monday's trade. Weakness in the thrifts & mortgage (-2.8%) industry group, though, was largely offset by strength in the investment banking group (+2.6%). Merrill Lynch (MER 67.42, +1.33) was a standout again as investors rallied around reports that CEO Stanley O'Neal may be on his way out.
The materials sector (+1.2%) was Monday's best-performing area as the decline in the dollar index (-0.3% to 76.84) continued to prop up stocks of companies that benefit from increased commodity prices/demand.
Separately, Dow component Verizon (VZ 45.99, +0.39) reported better-than-expected third quarter earnings that lent added support to the broader market. Cereal maker Kellogg (K 53.11, -1.33), on the other hand, weighed on the proceedings following an FY08 earnings forecast that noted food cost inflation concerns and which was disappointing relative to the current consensus view.
NYSE Adv/Dec 1891/1356...Nasdaq Adv/Dec 1495/1475
