Sonny/ANN---This is depressing : this is from Robert Walberg ( Birefing.com
BRIEFING.COM - Robert Walberg] It is time, once again, to briefly reflect on a number of the major issues currently impacting stock prices.
Oil Prices
Despite OPEC's decision to bolster output by 800,000 barrels per day, crude prices will continue to rise - at least over the near to intermediate-term. Demand is simply too great and supply too low. There are also many who doubt that OPEC can deliver on its promise of increased production given that many member countries no longer have excess capacity. Once traders realize crude prices aren't going to trade below $30 bbl, it won't take them long to drive the price to the $38-$40 bbl range. The impact on the markets will be modest, as higher crude prices have a greater impact on market psychology than underlying fundamentals. Nevertheless, higher oil prices will slow the pace of economic growth (it's like a tax on consumers) both here and overseas. Ultimately, this will result in reduced demand. This reduction in demand should begin to hit early to mid next year. About that time the benefits from increased exploration should also begin to be felt. The confluence of these forces will finally bring crude back to the $25 bbl area. In the meantime, expect the market to continue underestimating how high oil prices will climb. The overly conservative estimates on crude also mean that there is life left in the oil and oil service stocks, at least through year-end.
Euro
The euro is falling, the euro is falling! Until a few days ago, most of us considered this to be good news in that it was now cheaper to vacation in Europe. But over the past couple of weeks the decline in the euro has taken on a different, more ominous meaning. Global corporations such as McDonalds (MCD), DuPont (DD), Crane & Co. (CR), TRW (TRW), have recently preannounced earnings shortfalls due, in part, to the much softer than expected euro. The street is beginning to speculate that the weak euro could also adversely impact the results of other global giants such as IBM (IBM), Compaq (CPQ), Cisco (CSCO), Microsoft (MSFT), Intel (INTC), General Electric (GE), Merck (MRK), Johnson & Johnson (JNJ), Coca-Cola (KO), Lucent (LU), Colgate (CL), Procter & Gamble (PG) and Computer Associates (CA). If more and more of the large-cap, international companies are forced to guide estimates lower due to the euro's recent weakness (and we think this a highly likely scenario), investors should expect two developments. First, the blue chip indices will take a moderate hit - another 5% easy. Second, money managers will continue to seek out the mid- to smaller-cap names with less overseas exposure. Note that the S&P Midcap 400 Index has smoked its better known, more widely followed cousin, the S&P 500, so far this year. One last note on this subject. If numerous global giants cite the euro as a reason for missing their earnings targets, look for the euro to become a convenient excuse for disappointing numbers - even when it's only a marginal factor.
Earnings Warnings
So far the quarter is tracking about normal. However, one noticeable difference to this quarter's warnings from recent quarters is that more big companies have preannounced disappointing numbers. Given the higher than expected energy costs and the weaker than expected euro, look for this trend to continue. Again, not good for the blue chip indices. Traders will also want to pay close attention to the PC and semiconductor industries for signs of trouble in the very influential tech sector. Won't take but a handful of warnings from these groups to trigger widespread concern throughout tech sector that the slowing US economy will dampen future earnings growth. With valuations still high by historic standards that's not a message the street wants to hear. To stay on top of warnings season, make it a daily habit to check out Briefing.com's Warnings Calendar.
Campaign 2000
Message to George W. -- Wake Up! In case you're wondering Governor, election day is less than two months away. If you've got a gear other than reverse, now's the time to find it. It's not that we're rooting for George W. (some of us are and some of us aren't), it's just painful to watch a candidate self destruct. Unless Bush kicks it into overdrive, and soon, look for the market to start betting on a Gore victory in November. The winners - environmental and defense companies. The losers - oil, tobacco, pharmaceuticals and chemicals. While we're on the topic of the election, I spent some time the other night watching the Lazio/Clinton debate. Observation number one - - Rick Lazio would be to the US Senate what Britney Spears is to Rock & Roll. Observation number two -- get used to the sound of Senator Clinton.
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