Here's a mixed take on how the oil pact will affect the US market:
Sunday March 22, 6:31 pm Eastern Time
WALL ST WEEK AHEAD-Oil deal spells stock trouble
By Jennifer Westhoven
NEW YORK, March 22 (Reuters) - An agreement to cut global oil production should send stocks lower Monday morning, but the news might not be enough to overcome the roaring bullish momentum on Wall Street, analysts say.
''This is obviously bad news for the stock market tomorrow morning,'' said Hugh Johnson, chief investment officer at First Albany Corp.
In Riyadh on Sunday, Saudi Arabia, Venezuela and Mexico said an agreement was reached between OPEC and some non-OPEC members to remove up to two million barrels per day (bpd) or 2.7 percent of supply from a glutted world oil market.
The deal is expected to send oil prices soaring to $16 a barrel and possibly higher when they open for trading on the New York Mercantile Exchange's (NYMEX) out-of-hours ACCESS system at 1900 EST/2400 GMT. Bellwether oil futures for May delivery on the NYMEX closed Friday at
$14.61.
The deal will certainly rap transportation stocks, especially airlines, but energy stocks should jump.
''There's no question this is a negative for transports,'' said Peter Canelo, U.S. equity strategist for Morgan Stanley Dean Witter. ''Some of the industrial companies like utilities and basic industries
may also not be terribly happy.''
Falling oil prices, which have declined 45 percent since October 1997, have been one of the main reasons behind the jump in transports and airlines, analysts say.
The Dow Jones Transportation Average touched new highs last week, setting a closing high record of 3652.7 on March 17, given a strong leg-up by gains in airline stocks.
American Airlines' parent AMR Corp. (AMR - news), Delta Air Lines Inc (DAL - news) and US Airways Group (U - news) are all trading near historic highs, although the stocks closed lower Friday amid rumors of a possible OPEC cutback.
Michael Metz, chief investment strategist for CIBC Oppenheimer & Co., said the oil pact was only a modest, short-term negative for the stock market.
''The price of oil would still be within reason, and it is only one commodity among many,'' so it should not cause a spike higher in inflation, he said.
In fact, the deal removes the threat that the countries hit hardest by lower oil prices, such as Russia, Venezuela and Saudi Arabia, could suffer a Southeast Asia-like recession. ''It really could be
positive from a macro-economic viewpoint because that could have been a snowball on top of Southeast Asia. This removes that danger,'' Metz said.
Whether the deal is just a stumbling block or a brick wall in the path of the Dow on its way to 9,000 is still unclear, analysts said. The momentum of Wall Street's latest buying spree may outweigh the negative news on the oil front.
The Dow Jones industrial average topped off the week by jumping 103.38 points Friday to 8,906.43, crossing 8,900 for the first time and setting its fifth straight record. For the week it rose
303.91.
Portfolio ''window-dressing'' could help stocks this week as money managers who have underperformed the benchmark Standard & Poor's 500 Index rush to put cash into stocks before the end of the quarter, some said.
But if the market turned more bearish because of the oil news, it might react more swiftly to profit warnings or any hints of inflation, analysts said. No major economic data are due out next week.
Thom Brown, managing director of Rutherford Brown and Catherwood, said the market has gotten overbought because it has been ignoring a ''wishy-washy'' earnings outlook.
The stock market has shrugged off a slew of corporate profit warnings from heavyweights including Intel Corp. (INTC - news), Compaq Computer Corp (CPQ - news) and Motorola Inc (MOT - news). The pace could pick up as the quarter winds down.
For the quarter, the nation's largest companies are expected to report average earnings increases of 1.7 percent from last year, down sharply from the 10.4 percent growth analysts were forecasting at
the start of 1998, according to companies that track Wall Street profit forecasts.
It would be the slowest growth since the 1991 fourth quarter, when profits for S&P500 companies were flat.
''The market has so much momentum behind it, it is going to be tough to see any meaningful sell-off until the enormous amount of domestic and foreign money stops pouring into it,'' Brown said.
At least one analyst, Johnson, said the OPEC deal might be just the thing to slow down the inflows.
''It's always an outside event that sparks a correction, and maybe this is it,'' he said.
The Nasdaq composite index rose 17.5 points to 1,789.16 for the week. The Standard & Poor's composite index of 500 stocks rose 30.57 to 1,099.16. |
