Every single stock on my watch list was red today. The culprits were crude oil’s march to $133 per barrel and the release of the Fed minutes. Also, adding to the selling pressure was bad news from the airlines. There was basically no good news that crossed the wire. Bonds even sold-off. We have finally gotten the pull back that I have been anticipating and I’m looking for stocks to come in a little bit more before I start buying.
Crude oil was flying high all morning and it got an added boost from a very bullish inventory report. The Energy Department reported that crude oil inventories fell 5.32M barrels last week. The consensus estimate was for an increase of 300K barrels.
American Airlines announced it will reduce its fourth quarter domestic capacity by 11-12% because of record fuel prices. The company also plans to eliminate “thousands” of jobs and retire about 85 jets. It will also begin charging $15 for customers’ first checked bag. AMR, the parent company of American Airlines, and UAUA, United Airlines, were off about 24% on the day.
Stocks were trading about 0.5% lower until 1pm when the Fed minutes were released. Investors then sold the heck out of stocks and the major indices finished the day down about 1.5%. Why all the selling? Here is the excerpt that frightened investors:
“Most members viewed the decision to reduce interest rates at this meeting as a close call…Several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term.”
Basically, it looks as if the Fed is done cutting interest rates. Inflation is a key concern and reducing rates any further will hurt the dollar and commodity prices will continue to rise. The Fed looks as if it is out of bullets - I expect rates to remain at 2% for a while.
From Briefing.com, “The Fed expects 2008 real GDP growth of between 0.3% and 1.2%, which is down about 1% from their previous forecast. The 2008 inflation outlook was increased, as was the unemployment rate forecast.” With oil at such high levels, economic growth will be stagnant as consumer spending slows.
DJIA 12,601.19 -227.49 (-1.81%)
Nasdaq 2,448.27 -43.99 (-1.80%)
S&P 500 1,390.71 -22.69 (-1.63%)
NYSE Volume N/A
2-Yr Bond 2.41% +0.07
10-Yr Bond 3.81% +0.03
30-Yr Bond 4.55% +0.02
Crude Oil (July) 133.17 +4.19
Nat Gas (June) 11.640 +0.275
Gold (June) 928.60 +8.40
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