Investors Watching Oil Prices Closely
For investors this week, it’s all about oil. Skepticism is growing that crude prices will stay high, and analysts believe a break in the energy market would now fuel a stock market rally.
Volume should stay light, however, given the reluctance to put money in the market ahead of the Republican National Convention, which begins in New York a week from today. The government has warned that the convention would be an “attractive” target for Al Qaeda.
Energy prices are still expected to be the market’s primary focus. Any relief from the prices, which are nearing $50 a barrel, would be welcome.
“If energy prices were to break, the equity markets would strengthen quite meaningfully,” said Christine Callies, managing director and chief market strategist at Bessemer Trust, with $38 billion in assets under management. “We’d see a relief rally.”
Stocks have been pressed as crude oil has been racking up record prices. But more market strategists are questioning whether the supply-and-demand scenario can sustain such high prices. “I’m skeptical of these oil prices,” said Subodh Kumar, investment strategist at CIBC World Markets. “I think people are making two assumptions on energy. One is that there are enough political problems globally to interrupt supply. But supply hasn’t been interrupted for a long period of time.”
Another assumption “is that global growth is going to accelerate and push up demand,” Kumar said. “But I think global growth will decelerate.”
Even after U.S. oil notched a record of $49.40 a barrel Friday, stocks ended higher. The price of oil, however, had retreated some by the end of regular New York futures trading, with crude settling at $47.86, down 84 cents.
Meanwhile, as the second-quarter earnings period winds down this week, attention also will be on economic data.
“The oil, obviously, is going to be the major focus, but next there will be things coming through that offer an important read on the level of overall economic activity, like home sales and durable goods,” Kumar said.
The government will release figures on existing-home sales Tuesday. Analysts expect the data to show that sales of existing homes slipped to a seasonally adjusted annual pace of 6.81 million units in July from 6.95 million units in June.
On Wednesday, the Commerce Department will release data on demand for durable goods, which are big-ticket items meant to last three years or more. Orders for July are forecast to rise 1%.
The U.S. will release revised numbers for second-quarter gross domestic product Friday. Wall Street expects the report to show the economy grew at an annual rate of 2.8%, below the 3% pace previously reported.
