Oil prices hurting the recovery?
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Bull markets apparently have something in common with newborns. They're cute. They're cuddly. They exhibit a lot of impressive growth.
Then they hit the Terrible Twos.
Wall Street marked the second anniversary of reversing its recessionary retreat Wednesday, then threw a tantrum the next day over what unrest in the Middle East and North Africa was doing to oil prices. It closed the week with a recovery on Friday in the face of earthquakes and tsunamis.
Where's a real good argument about how markets are rational when you need it?
The Standard & Poor's 500 closed Friday at 1,304.28, up 3.7 percent for the year. Some pundits would not be surprised by a 10 percent market correction, but so far the broad market index has backed off about 3 percent from its 2011 high closing price of 1,343.01 on Feb. 18.
Taking the longer view, the broad market index is up 93 percent since March 9, 2009, when the S&P's downward spiral inspired by the global credit crisis ended at 676.53. Given the magnitude of its climb since then, Wall Street's recent pause -- while not refreshing -- is not all that surprising, especially in the face of $100 a barrel oil.
"I see it continuing sideways to down, until there looks to be some closure on political events in the Middle East," said Malcolm Polley, president and chief investment officer of S&T Bank's Stewart Capital Advisors.
Mr. Polley said the oil risks were elevated now that political unrest has spread from Egypt, Tunisia and Libya to Saudi Arabia.
"If the Saudis go off-line or reduce output, that really puts the squeeze on oil, and all bets are off as to how high oil prices can go," he said.
Economists worry that high oil prices would threaten a recovery that appears to be gaining steam by squeezing consumers and narrowing corporate profit margins. Matt Yanni of Yanni & Associates Investment Advisors believes that the price of oil could continue climbing for a few weeks, but should fall after that.
First Published March 13, 2011 12:00 am
