Interest Rate Fears Weigh on Markets Despite Falling Oil Prices
By Chris Puplava, March 8, 2006
The markets were down today in early morning trading on fears of rising interest rates and inflation, and the impact of both on the economy. Higher bond market rates tend to hurt the stock market as stocks struggle to provide similar rates of return with bonds, a competing asset class. Long-term interest rates rising to multi-year highs is clearly bad news for those looking to take out fixed-rate mortgages as well as for homebuilders or people looking to sell their homes.
Supporting fears of further inflation came on Tuesday when the Labor Department released its revised fourth quarter non-farm productivity that stood at -0.5%, which initially was estimated to fall 0.6% after growing at a 4.5% rate in the third quarter. The fourth quarter marked the first decline in U.S. non-farm productivity since the first quarter of 2001, when the nation's last recession began. Another inflationary indicator released in the report was labor costs, which remained tame on a year-over-year (YOY) basis, though rose significantly over last quarter, up 3.3%.
The employment data set for release this Friday will shed further light on the inflation situation. If unemployment continues to fall at the same time productivity is falling then we will likely see wage inflation causing more concern for the Fed. Economists polled by MarketWatch are forecasting non-farm payrolls to have risen by 206,000 in February, and the jobless rate is expected to be 4.8%, up from 4.7% in January.
On a positive note, crude oil inventories rose a sharp 6.8 million barrels last week to 335.1 million. Crude oil inventories are at their highest levels seen in nearly 7 years, although declines were seen in refined products, with gasoline stocks falling 1.1 million barrels and distillate stocks down 2.7 million. Also weighing on oil was a decision by the Organization of Petroleum Exporting Countries (OPEC) to maintain its current oil production output at 28 million barrels per day.
Energy prices were down on the news that one month natural gas futures down 0.75% and the benchmark West Texas Intermediate Crude was down 2.53%, falling below $60.00 a barrel early in the day before settling at $60.02 a barrel.
The energy indexes responded negatively to the news in early trading but ended up on the day with the Philadelphia Oil Services Index (OSX) up 0.06%, the AMEX Oil Index (XOI) up 0.20%, and the AMEX Natural Gas Index also up, rising 0.58%.
In addition to falling energy prices, another positive note to help ease inflation concerns was a possible sign of a cooling economy with the factory orders report released on Monday. Factory orders fell sharply, down 4.5% in January relative to December, with a 9.9% plunge seen in durable goods orders, which in turn reflected a 78% month-to-month downswing in civilian aircraft.
After initially falling in morning trading, the broad indexes were able to stage an afternoon rally to finish marginally up for the DJIA and S&P 500. The NASDAQ was down slightly, finishing down 0.01% to settle at 2268.25. The movements were mixed today as four out of the twelve sectors were down, with the financials and service sectors finishing flat. The sector with the biggest gains on the day was healthcare, up 1.0% while the transport sector saw the biggest decline, down 0.8%.
|DowJones Industrial Avg.||11,022.63||41.94||0.4%||0.0%||2.5%|
|Nasdaq Composite Index||2,271.82||3.44||0.2%||-1.3%||1.2%|
|DowJones Transportation Avg.||4,408.35||-26.27||-0.6%||-2.2%||4.2%|
|DowJones Utility Avg.||401.31||2.01||0.5%||-2.6%||-0.8%|
|Week To Date |
|1 Month |
Industry Gains & Pains
|Industry Group||Today's |
|Week to Date |
|Industry Groups with the Greatest Gain in Mkt. Cap. Today|
|Personal & Household Prods.||313,168||4,347||1.4%||2.0%||2.4%|
|Biotechnology & Drugs||758,759||9,955||1.3%||-0.2%||0.3%|
|Software & Programming||692,467||4,378||0.6%||-0.3%||0.7%|
|Industry Groups with the Greatest Loss in Mkt. Cap Today|
|Oil & Gas - Integrated||1,753,735||-4,716||-0.3%||-3.1%||-5.9%|
Have a pleasant weekend,
© 2006 Chris Puplava