Monday, August 11, 2008

Preview For The Week - CPI Data Plus Will Oil's Decline Continue To Lift Stocks and a Barron's Article

There are several reports being issued this week, but not one is as important as Thursday's July Consumer Price Index (CPI) report. The report is a gauge of inflation that shows how the end consumer is being effected. Most economists estimate the overall CPI to rise 0.4% in July versus June's reading of 1.1%. The "Core CPI" (excludes food and energy prices) is estimated to gain 0.2% in July which is definitely better than June's gain of 0.3%.

The other reports to be released this week are: Tuesday - June's International Trade Deficit; Wednesday - July's Retail Sales Report, July's Import Prices, and June's Business Inventories; Thursday - the afore mentioned CPI Report; and Friday - July's Industrial Output, July's Capacity Utilization Data, and the initial report on Consumer Sentiment from Reuters/University of Michigan Surveys of Consumers.

One of the other things that Wall Street will continue to focus on will be the price of oil. Oil has dropped dramatically since its inter-day high on July 11 due to a rise in supplies, a drop in consumption, and a stronger dollar. This has definitely helped the inflation issue and the consumer. If the consumer is spending less on gas and energy (as well as food), then they should be able to spend more at retail shops, travel, and technology.

Interestingly enough, Barron's is set to publish an article in the August 11 issue that says that energy stocks are now undervalued.

"The sharp drop in oil and natural-gas prices has produced an even sharper pullback in energy stocks, creating what may be one of the best buying opportunities in the sector in several years.

Energy issues have rarely been so inexpensive, relative to oil and gas prices, estimated asset values and earnings. Barring a collapse in oil and gas, energy could prove to be one of the market's top groups over the next year. Most of the stocks could easily rise 25% or more."

Maybe Barron's read Joe Rollin's Wednesday, August 6th post "Many Reasons for Optimism". In the post, Joe explained that energy stocks are "incredibly cheap" among his many other conclusions. If you missed it, it is something to go back and read.

Sources: Reuters, Barron's

No comments: