S&P 500 1,101.72 +1.43%
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Bottom Line: Last week was definitely a win for the Bulls. Crude oil reached a 21-year high and reports confirmed a slowing of economic growth in the second quarter, yet U.S. stocks advanced. Telecom and software, having recently experienced significant declines, saw some of the best performances for the week. It was also a positive that the CRB Index continued to drop, which bodes well for future readings of inflation. Finally, the AAII % Bulls fell again, which is a contrary indicator and a good development. On the negative side, the Put/Call, Arms and VIX all fell, showing there is still too much investor complacency to sustain a meaningful advance. I currently do not believe high oil prices are a major problem for the U.S. economy, however above $50/bbl. economic weakness will accelerate. I continue to anticipate a decline in prices before they reach this level. Inflation is still set to rise below its 41-year average of 3.0% for all of 2004.
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