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Frigid weather across the nation coupled with news that Saudi Arabia will continue to cut production sent crude prices soaring today. Oil prices closed up nearly $3 per barrel, its biggest jump in sixteen months.
Not to sound like a broken record, but I have mentioned that the scare tactics earlier this month by many oil bears were nothing more than "Pure Conjecture". I also said that the sell-off we witnessed over the past 4 weeks may be "one of the best buying opportunities of the year." A few weeks ago, the media was trying to get us to believe that the warm weather we experienced earlier in the month was here to stay. They didn't fool us.
We may not see $80 again until the next price shock (war, hurricane, etc), but its becoming very clear that the energy sector is transitioning from its up-cycle to a plateau, but at higher levels. Even at $50-$60/ barrel oil, energy companies will still make very nice profits.
Adding to the rise in energy prices was the jump in the January consumer confidence index. Investors are well aware that an improving economy will eventually lead to increased fuel consumption.
The stock market looks very tired, and the news on the earnings front continues to be mixed. The markets string of thirteen consecutive quarters of double-digit gains is making investors wonder if the trend can continue.
The DJIA average closed up 32.53 to 12,523, helped in part by gains in Caterpillar (CAT), Exxon Mobil (XOM), and Honeywell (HON). The markets gains were muted when 3M (MMM) announced a disappointing outlook, and shipping giant UPS forecasted slowing demand for 2007.
Tomorrow, the Fed will render its decision on interest rates, and many believe that rates will remain unchanged. This being said, investors will be hanging on every word in the policy statement issued after the announcement. Most investors have assumed the feds next move would be to lower rates, and a move to a tightening bias will have a negative impact on the markets.
The Dow has racked up 26 record closes in less than four months. Given that the market rally for the past six months (1800 points on the DJIA) were based on the fed cutting rates, any signs contrary to popular opinion could cause a 50% retracement (900 points) in the popular market averages.
