Aug 17 2008
Will Oil and dollar still rally the stocks this week?
What has become quite evident from the recent past that the two major factors driving the stocks up are commodities, majorly oil and dollar. With the dollar gaining impressively against the Euro and Pound in forex markets with figures of 2.2 and 3 percent respectively and oil prices falling to about 1.2 percent to settle at $113.77 per barrel, the strengthening of stocks was all but evident.
The NASDAQ finished the week up 1.6%. Major contributions to this upswing was shared by the telecoms sector, the consumer staple sector and the technology sector which showed an increase of 2.2%, 1.5% and 1% respectively. The S&P sector affected badly due to the analysts downgrade of Goldman Sachs was the worst performer and was down almost 3%. As per my view, US economy is heading for a prolonged slowdown. Demand has slowed and confidence of the industry has come down for investing further. What effect this could have in future on emerging economics. I think it will depend on how much export oriented the economy is and how much is the level of the domestic demand. For example, economies of countries like Thialand, Malaysia etc have already showed signs of weaknesses due to cancellation of huge export orders.
What would be interesting though would be to see how long this trend of strengthening dollar and falling oil prices would continue. It has been quoted that with economic data fluctuating too much it would be oil which would steer the market although the same is not likely to show any major weaknesses in future. In times to come it will be very tough to find any other factor apart from commodities which would carry an influential impact on the market unless we find some crazy merger or pullout coming up. The market has found the path of least resistance with low commodity prices and a strong dollar. But will all these analysis the ongoing Russia-Georgia conflict could prove to be the dark horse in emerging out as to being the key element.
This conflict has already increased the transaction of dollar in comparison to the Euro currency hence strengthening the dollar. The larger picture speculated from this conflict is that the region heading for a second cold war which would prove to be a big blow for globalization as in today’s time everybody in the world is linked to each other no matter which part of the world they might be in.