Wednesday, July 23, 2008

Dolly Moves Towards Land, Oil Drops, Interest Rates Creep Up, The Market Looks to Extend Gains

As Hurricane Dolly moves towards the Texas-Mexican border and away from the oil drilling platforms in the Gulf of Mexico, the oil market has decided thus far to take a breather once again. This morning oil is down on the Dolly news. This past week's earnings reports seem to be alluding to the fact that the financial stocks may be better than previously thought, thus the dollar has rallied on rising interest rates. We have already discussed in previous posts how a strong dollar will ultimately help drive oil prices lower.

There have been quite a few Fed presidents talking up the possibility of raising interest rates sooner rather than later to combat inflation. This would of course move only the short term rates, but the long term rates have moved higher on the inflation worries. When the long term rates creep up, mortgage rates go with them. There is some debate over whether this will cause potential buyers to get in now and lock in rates or stop them from buying altogether. History suggests that waiting around could be the wrong move to make. This could help jumpstart home sales from what the experts are saying.

The market has been performing well over the past week in almost all sectors but energy (due to the drop in energy prices) has lagged or fallen. Financials have jumped dramatically, and since the Dow and S&P are heavily weighted with financials, they have jumped accordingly. Remember our previous post - Where Do We Go From Here - 2nd Half 2008 - where we discussed the the financials and how we believed they would lead the rallies? Well, this has been exactly what has happened.

We will continue to watch the market for follow through with this rally and see what trends start to change or develop. It has been a very busy earnings season thus far, and most of the big financials have reported. We will see what starts to drive the market now.

No comments: