Two points.

That’s what wrestlers score when they get a reversal. And that’s what seems to have happened in the US stock market.

A month ago, higher energy prices had people worried that a dampened consumer would weigh on the housing market, which would lead to more foreclosures and additional banking writoffs, and maybe even more failures.

Now, lower energy prices have people expecting that a revived consumer will stabilize the housing market and lead to a financial recovery. That’s why financial and consumer stocks are leading this recovery.

Ironically, lower oil should lead to lower inflation, removing much of the need for the Fed to raise rates. And with many banks on the edge of capital needs, the Fed is likely to leave rates unchanged, at least for now. Financial companies need time to earn back many of their losses.

In wrestling, a reversal scores you points and puts you in control of the match. Let’s hope that the consumer remains on top, at least for this round.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T20:47:47+00:00 August 12th, 2008|Global Market Update|0 Comments

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