By Rick Glaze
Last week’s rally in the stock market fizzled out toward the end of the week despite a five-day oil price slide of almost 7 percent. The major averages finished the week slightly positive. Crude oil closed Friday at $53.32 per barrel down from the recent high hit on April 4 of $58.28. Higher short-term interest rates, higher oil prices and a strengthening U.S. dollar have all colluded to keep the major stock averages in check since the first of the year. While many consumers fear the worst about gas prices at the pump, gasoline supplies appear to be above last year’s level. These higher inventories may be a signal that prices are peaking out and the summer driving season could be spared higher prices.
Meanwhile, the earnings report season got an early boost from Alcoa, which reported, better-than-expected profits after the market close Wednesday.
Industry sectors continued to rotate as previous winners continued to lose ground. The Dow transportation average gained 26 percent in 2004 but continued a consolidation this year by dropping 3.3 percent on Friday. Truckers and railroad stocks, which make up the index, are subject to significantly higher costs when fuel rises in price. Metals and energy stock have been the darlings of Wall Street for more than a year but are losing favor with institutional investors. Other groups that led in 2003 but have been overlooked of late are beginning to see buying interest from investors. Medical-Biotech, Internet-E-Commerce, Medical Products and Commercial Services are sectors showing positive signs. The S&P 500 and the Nasdaq Composite gained 0.7 percent each for the week while the small-cap 600 closed a bit lower for the week. Crude oil is up 220 percent. gold, 64 percent.
Inventories keep rising and year-to-date the increases have risen faster than any time in the past 25 years, according to Bear Stearns. Mutual funds, hedge funds and even insurance companies are buying oil on the speculative markets.
Rick Glaze is President of Glaze Capital Management, providing wealth management solutions for busy, successful People in Silicon Valley.
