Sunday, November 21, 2004

Market Week in Review

S&P 500 1,170.34 -1.2%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: U.S. stocks declined last week for the first time in a month on concerns over rising energy prices, higher inflation readings and a falling US dollar. The decline in the S&P 500 snapped the biggest three-week rally for the index in two years. Market action, while mildly negative, was healthy given recent gains. From their respective lows on 8/12/04, the S&P has returned 10.6% and the NASDAQ has soared 18.4%. I continue to expect oil to head towards $40/bbl. within the next few months. As I stated in the previous post, inflation readings should show deceleration in the near future. Almost all of spike in the latest PPI/CPI was a result of the hurricanes. Even with these spikes, readings are still very close to the historical averages for inflation. As far as the decline in the US dollar, I believe this is a positive as long as it stays orderly and doesn't go too far. Even gloomy Morgan Stanley economist Stephen Roach said, "Provided the currency shift doesn't get out of hand, a sustained but managed weakening of the dollar is good news for the global economy and world financial markets." Moreover, the most recent 20% decline in the dollar was accompanied by a 48.2% increase in the S&P 500.

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