Weekly Market Update
Week of February 28, 2011 – SPECIAL EDITION
Oil and Gas on Higher Ground
As turmoil in the Middle East continues to roil the markets, it is no coincidence that “oil” is at the root of economic concerns. From an investment perspective, analyzing oil’s relationship to the markets is crucial, but the reality is that nearly everyone (investors and non-investors alike) are affected by oil prices. So what exactly is affecting the rise in oil costs? And, more importantly, do oil prices have the potential to derail America’s economic recovery?
After the fall of dictatorial governments in Tunisia and Egypt, unrest has spread throughout the Middle East, with Libya dominating the spotlight this week. The International Energy Agency reported late Friday that Libya is probably producing about 850,000 barrels of oil daily, down from its normal capacity of 1.6 million barrels, which represents just under 2% of the world’s oil supply. While the sudden oil shortage hits European refiners the hardest,[i] oil fears still caused the stock market to suffer its first weekly loss in a month. For the week, the S&P 500 slid 1.7%; the Dow dropped 2.1%, and the Nasdaq fell 1.9%.[ii] Happily, fears were eased somewhat on Friday when Saudi Arabia reported it has increased its crude oil production to 9 million barrels a day to make up for supplies lost in Libya.[iii]
What we’re seeing right now is a tug of war between worry and economic fundamentals. While most U.S. economic data looks good, investors are focused on the potential implications of interruptions in oil production. For the moment, this issue will dominate the headlines regardless of how attractive other data looks.
*Graph courtesy of http://money.cnn.com/2011/02/25/markets/oil/index.htm
U.S. drivers have already been feeling the pinch at the pump, with gas prices spiking 6 cents on Friday, the biggest one-day jump in two years. The national average price for a gallon of regular gas rose to $3.29, according to AAA, marking the fourth day in a row that prices have risen and bringing the national average to the highest level since October 2008. In general, every $1 increase in the price of oil costs consumers $1 billion over the course of a year.[iv] Higher oil prices also weigh on the U.S. economy by increasing the costs of moving goods,[v] thus transferring rising costs to manufacturers, wholesalers, retailers, and eventually the American public.
*Graph courtesy of http://money.cnn.com/2011/02/25/news/economy/gas_price_spike/index.htm
If gas prices continue to rise as some analysts predict, how will this affect the economic recovery? Put simply, there is no way to know for sure. Granted, when gas prices go up, Americans have less to spend on everything else. And since consumer spending makes up over 70% of the U.S. economy[vi], a drop in spending could slow the recovery down. At the same time though, modest increases in fuel prices do not inevitably cause economic slowdowns. What they more often do is cause alarm, thus affecting consumers’ perceptions about what they can afford and causing them to react by tightening their belts.
So while the natural reaction may be to retreat to conservative investments and cut-off all spending on nonessentials, it is important to avoid overreacting. The coming week promises to shed more light on the true status of our domestic economy as various data related to jobs, payrolls, and manufacturing are released.[vii]
ECONOMIC CALENDAR:
Monday – Personal Income and Outlays, Chicago PMI, Pending Home Sales
Tuesday – Redbook, Construction Spending
Wednesday – ADP Employment Report, EIA Petroleum Status Report, Beige Book
Thursday – ECB Announcement, Jobless Claims, Productivity and Costs, ISM Non-Mfg Index Friday – Employment Situation, Factory Orders
| Data as of 02/25/2011 | 1-Week | YTD | 1-Year | 5-Year | 10-Year |
| Standard & Poor’s 500 | -1.72 | 4.95 | 19.7 | 0.47 | 0.59 |
| Dow | -2.10 | 4.78 | 17.5 | 1.93 | 1.62 |
| NASDAQ | -1.87 | 4.83 | 24.5 | 4.32 | 2.29 |
| MSCI EAFE | -1.49 | 4.77 | 17.7 | 1.44 | 2.40 |
| 10-year Treasury Note (Yield Only) | 3.59 | N/A | 3.64 | 4.57 | 5.08 |
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.
QUOTE OF THE WEEK:
“The secret of happiness is freedom. The secret of freedom is courage.”– Thucydides
RECIPE OF THE WEEK:
Lemon Verbena Cookies
From: Better Homes and Gardens
Lemon verbena adds pleasant tang to these simple sugar cookies.
Servings: 36 cookies
Prep: 20 mins
Total: 28 mins
Ingredients
2-1/2 cups all-purpose flour
2 tablespoons dried lemon verbena leaves, crushed
2 teaspoons baking powder
1/4 teaspoon salt
1 cup butter (no substitutes), softened
1-1/2 cups sugar
2 eggs
1 teaspoon vanilla
Directions
1.Combine flour, lemon verbena leaves, baking powder, and salt; set aside. Beat butter in a large bowl with an electric mixer on medium speed for 30 seconds. Add sugar, eggs, and vanilla. Beat until well combined. Add half of the flour mixture. Beat until combined. Stir in remaining flour mixture with a wooden spoon until combined.
2. Drop dough by rounded teaspoonfuls 2 inches apart on an ungreased cookie sheet. Bake in a 350 degree F oven for 8 to 10 minutes or until edges are lightly browned. Remove to wire racks and cool. Makes 36.
GOLF TIP OF THE WEEK:
Maintain Your Balance
Maintaining your balance is important in all sports. In golf, better balance throughout your swing insures a solid shot. Here are two ways to improve your balance, which in turn will improve your ball contact and control, thus leading to lower scores.
1) Limit the amount of force you use when hitting the ball. Too many golfers think they need to use all their strength to hit the ball and this causes severe control problems. The majority of golf professionals will tell you they only use about 75% of their strength when hitting and/or swinging at the ball.
In order to practice this, simply go to the driving range and try to develop the feeling you are only hitting and/or swinging at the ball with 75% of your power by:
A. Hitting balls with a 3/4 back swing
B. Hitting balls shorter distances, say 25% shorter.
2) Wear the slickest soled regular street shoes or boots possible whenever you practice (NOT spikes or golf shoes). It’s amazing how fast you learn to swing within yourself, keep in balance and maintain control when NOT doing so could cause you to lose your balance.
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Insert your broker/dealer disclosures here. i.e. Securities offered through “Your B/D Name Here,” Member FINRA/SIPC.
*Stock investing involves market risk including loss of principal. The fast price swings of commodities will result in significant volatility in an investor’s holdings. Government bonds and Treasury Bills are guaranteed by the US Government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
[i]http://www.google.com/hostednews/ap/article/ALeqM5hYoyif7KWMVcuNnmsT9eJ7tcTxtw?docId=09faacc3557c4a43999d1d9e7f84a960
[iii] http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201102270952dowjonesdjonline000207&title=saudi-arabia-producing-9-million-b/d-officials
