Oil: The Economy’s Leading Indicator

Thursday’s nasty sell off appears to be bleeding into today. Of course, TradeMaster technical analyst Jason Cimpl had us prepared for more declines today with his excellent video chart analysis that accompanied Thursday’s Daily Profit. If you missed Jason’s analysis, here’s the link again. 

Jason is expecting some upside later in the week. That would coincide with the start of earnings season. Alcoa (NYSE:AA) kicks things off tomorrow.  

*****Bloomberg is reporting that the earnings decline is slowing. Year over year corporate earnings fell around 60% in the first quarter. Earnings were expected to have dropped another 34% last quarter and may slow to a 21% drop in the third quarter.  67% of companies beat expectations in the first quarter. But of course, when expectations were as low as they were, that’s not particularly impressive. Plus, gains were accomplished through cost-cutting, which is only a temporary fix. Still it was enough to get a rally going. It will be interesting to see if earnings season can send stock prices higher again... 

*****Oil has dropped to $64 a barrel. Demand is down as the economic recovery is not exactly robust. Back in 2005 and 2006, oil was the leading indicator for the economy. Even though oil prices were taking a bite out of consumers’ budgets and even sparking some price inflation, stocks moved higher as oil demand indicated a thriving global economy.

Not much has changed. Even though comparatively lower gasoline prices give us a bit more spending money, rising unemployment is indicative of a still-weak global economy. Some analysts are saying that oil could fall to $50 a barrel.

*****China‘s still about the only country in the world that’s growing. Its Purchasing Manager’s Index rose for the 4th straight month. Current estimates are for a 7.8% GDP expansion this year. The U.S. will contract 2.7%, and that includes slight growth for the fourth quarter.  

At SmallCapInvestor PRO, we’ve been ahead of the curve, adding Chinese stocks for the last two months. You can get our complete analysis on 4 top Chinese investments here.

*****Now, let’s have a look at this week’s economic data... 

Wednesday, July 8, we get weekly crude oil inventories and the consumer credit report for May.  

Thursday, July 9 we get weekly unemployment claims numbers and wholesale inventories for May. 

Then on Friday, July 10, we get import and export prices along with the trade balance. We’ll also be treated to a preliminary look at the Michigan Consumer Sentiment poll for July.  

Comments on this article

There are no comments for this entry yet.

Add your comments