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Optimism Meets Harsh Reality: Inflation, Slowing Consumer, Financial Woes

Posted May 20, 2008 04:35pm EDT by Aaron Task in Investing, Biotech and Clean Tech, Electronics, Semiconductors, Recession, Banking
The market's recent flirtation with optimism ran smack into the harsh reality of rising core inflation and a slowing consumer Tuesday. Not surprisingly, optimism lost and major averages tumbled.

The Dow fell nearly 200 points, or 1.5%, while the S&P and Nasdaq each shed about 1%.

Surging crude and gold prices gave a boost to commodity producers like Occidental Petroleum, Gold Corp. and Terra Nitrogen. Crude's latest spike also helped alternative energy stocks like Pacific Ethanol, which reported better-than-expected profits late Monday.

But declining stocks led advancers by a 2-to-1 margin amid renewed concern about consumer spending after the weak results and/or guidance from, most notably, Home Depot and Saks. Meanwhile, Smart Modular's warning, following Monday's cautious comments from SanDisk, weighed on the consumer electronics "food chain", including component makers like Micron, which fell 6.3% in heavy volume. (And, yes, having been bullish on Micron I am eating crow today.)

Compounding the market's woes, financial stocks were scuttled by news AIG is raising $20 billion in capital, while Lehman Brothers cut estimates on fellow brokers Goldman Sachs and Morgan Stanley. Also, Citigroup, JPMorgan and other big banks slumped after influential analyst Meredith Whitney of Oppenheimer forecast banks may write off an additional $170 billion by the end of 2009.

Obviously there were a lot of factors dragging down the market Tuesday and one down day doesn't necessarily mean the rally since mid-March is over. But as Henry and I discussed Monday morning, that rally did create an overabundance of optimism, or at least complacency.

Today is a reminder of the vulnerability of such bullish sentiment.

30 Comments

Sunil
Sunil - Tuesday May 20, 2008 05:08PM EDT

Yes sir, Why think just trade based on the charts like a monkey. Well you win today we live to fight another day. Keep killing whatever wealth this country has left you greedy stock market people. What a sorry state of affairs we have in our country and then you don;t want regulation or the uptick rule hmmmmmm.

taylor m
taylor m - Tuesday May 20, 2008 05:35PM EDT

well, you cant say that commodity trading hasnt gotten out of control, oil isnt about supply and demand anymore, were using less and paying more, when oil dips dues jump in to make money and raise the price.....and then, the whole mortgage mess. selling mortgage backed securities was the begining of the end. it does seem like a boys club, full of shell games that make a few people a lot of money. what value are they adding to society?

Les
Les - Tuesday May 20, 2008 05:46PM EDT

Hedge it Oil. Get RICH!!!!!

Yahoo! Finance User
Yahoo! Finance User - Tuesday May 20, 2008 05:54PM EDT

People never admit that all the mess is caused by WAR. We are keep spending on WAR and not in our economy, go and figure it out. Who will be paying interest and principal on our Debt ??? It is just a beginning,

Tom
Tom - Tuesday May 20, 2008 05:54PM EDT

This is what happens when you give the republicans control, from 2000-2006 the republicans controlled the house, the senate and the presidency and now we are bearing the brunt of their screwups. Thank god the democrats now have the house and senate and hopefully the dems will take back the white house and then we dems can clean up the mess that the GOP made, like we always do!

Yahoo! Finance User
Yahoo! Finance User - Tuesday May 20, 2008 05:54PM EDT

People never admit that all the mess is caused by WAR. We are keep spending on WAR and not in our economy, go and figure it out. Who will be paying interest and principal on our Debt ??? It is just a beginning,

MaryJane
MaryJane - Tuesday May 20, 2008 06:09PM EDT

The oil mess is caused by the fact that we failed to take heed after the early 1970s oil embargo which was caused by geo-political tensions. The problem went away and we simply forgot about it. Now, 30 to 35 years later, the problem is back, only worse than it was before due to the fact that it is much more complex (geopolitical tensions, competition from India/China, weak dollar, high demand, lack of conservation, speculators, refinery capacity problems). Yes, the WAR is certainly a factor, but not as much as one would think. From the early 1970s, we should have been working mightily to reduce our dependence on foreign oil, and we did nothing. Blame assignment? Look at every administration and politician over the last 30 years and don't forget to look in the mirror as well. We did this to ourselves.

Kinia
Kinia - Tuesday May 20, 2008 06:13PM EDT

GREED! That's it.....

farmer
farmer - Tuesday May 20, 2008 06:30PM EDT

Solution - Start driving to work with a friend next door. Cut the traffic in half and see what happens to oil price. Cut taxes in half by reducing government in half. Get controls out of the free market system. Markets would begin to boom!! Its up to the complacent voter.

RobertM
RobertM - Tuesday May 20, 2008 06:31PM EDT

Please don't blame it on the GOP. George W did screw this up howver lumping it on the GOP is ridiculous....Who had to clean up the mess Jimmy the moron Carter left???? Reagan, that's who....Then Clinton got to reap the rewards of Reaganomics for years...... Now, we are back to the starting line......We'll see what the Dems do if they get in. The two losers we are presented with this time are not a shoo in by any means. Based on that, it is amazing that it is not a runaway by the Dems. I voted for Hillary today as a registered democrat...I think she is the less of two of the 3 evils we are left to choose from.......WOW WHAT a bunch of losers we have to chose from. GORE, then KERRY, now Billary and Obama.......Hard to believe this is the best the dems can muster...

- Tuesday May 20, 2008 06:42PM EDT

If you had used your head ,you would have seen that this was coming If you bought oil ,Gold ,and nat gas futures ,you would be up ......Now the play will be in Solar and wind power ! so stop Bitcking and invest in something that will make you money ...you can't fight it ,so profit from it

Yahoo! Finance User
Yahoo! Finance User - Tuesday May 20, 2008 06:46PM EDT

Why we have weaker dollar because we have more debt. Why we have more debt, we are just spending like a drunken sailors. So stop spending money on WAR and do not print checks ($1200) credit per family. Pay off country debt and increase interest rates. Yes. We have competition from China/India but that not make so much raise in Oil price. It simple thing reduce the debt.

Yahoo! Finance User
Yahoo! Finance User - Tuesday May 20, 2008 06:47PM EDT

Why we have weaker dollar because we have more debt. Why we have more debt, we are just spending like a drunken sailors. So stop spending money on WAR and do not print checks ($1200) credit per family. Pay off country debt and increase interest rates. Yes. We have competition from China/India but that not make so much raise in Oil price. It simple thing reduce the debt.

Shelby
Shelby - Tuesday May 20, 2008 06:47PM EDT

My god, is this where the idiots come to post their blithering nonsense? I have never heard such idiocicy as the last 12 posts.

HASBEEN
HASBEEN - Tuesday May 20, 2008 06:59PM EDT

I THINK IF AMERICANS TOOK A HARD LOOK AT THEIR WAY OF LIFE, WE WOULD REALIZE THAT WE WASTE, WASTE, WASTE, AN AWFUL LOT OF RESOURCES. TAKE A LOOK AT OIL AND GAS, WHY ARE SO MANY IDIOTS DRIVING LARGE TRUCKS AND SUV'S WITH ONLY ONE PERSON IN THE VEHICLE. I FIND THAT VERY UNPATRIOTIC BECAUSE I HAVE A LOT OF FRIENDS IN THE SERVICE FIGHTING FOR THAT GAS THAT PEOPLE ARE WASTING OVER HERE IN THE USA. ANOTHER THING, WHY DON'T WE BOYCOTT THE TOP 2 OIL COMPANIES, BECAUSE OF THEIR MARKET POWER IT WOULD FORCE THEM TO LOWER THE PRICES OF GAS AND THERFORE "IDEALLY" THE OTHER GAS COMPANIES WOULD FOLLOW SUIT!!!!!

HASBEEN
HASBEEN - Tuesday May 20, 2008 06:59PM EDT

I THINK IF AMERICANS TOOK A HARD LOOK AT THEIR WAY OF LIFE, WE WOULD REALIZE THAT WE WASTE, WASTE, WASTE, AN AWFUL LOT OF RESOURCES. TAKE A LOOK AT OIL AND GAS, WHY ARE SO MANY IDIOTS DRIVING LARGE TRUCKS AND SUV'S WITH ONLY ONE PERSON IN THE VEHICLE. I FIND THAT VERY UNPATRIOTIC BECAUSE I HAVE A LOT OF FRIENDS IN THE SERVICE FIGHTING FOR THAT GAS THAT PEOPLE ARE WASTING OVER HERE IN THE USA. ANOTHER THING, WHY DON'T WE BOYCOTT THE TOP 2 OIL COMPANIES, BECAUSE OF THEIR MARKET POWER IT WOULD FORCE THEM TO LOWER THE PRICES OF GAS AND THERFORE "IDEALLY" THE OTHER GAS COMPANIES WOULD FOLLOW SUIT!!!!!

greg
greg - Tuesday May 20, 2008 07:06PM EDT

World oil production MAX= 80 million bbl./day. World oil use today=82 million bbl./day.. Do the math. We're about to see problems we could have never dreamed of. Obama, Clinton, or McCain what are they gonna do? NOTHING nobody can, we are an oil dependant nation. Why is that a bad thing? If we dont drill it and burn it someone else will and they will get rich producing things with that energy. Wake up America

Yahoo! Finance User
Yahoo! Finance User - Tuesday May 20, 2008 07:15PM EDT

The strong invest in the next boom The weak blame their loss on government and big business We need to quit raising taxes on our businesses We need to allow exxon and shell to drill anywhere they want just like every other country in the world. We need to abolish ethonal because it is inefficient and it drives up the cost of commodities. We need to quit buying homes that we can't afford We need to cut up all of our credit cards. We need to own....ownership is the only way to accumulate wealth. We need to quit looking at Dems vs GOP. We need independant candidates who are motivated to do what is best for Americans....not their party or lobbiest.

- Tuesday May 20, 2008 09:24PM EDT

America is evil. America gets rich by raping the rest of the world with no concern about people or the environments.

RON
RON - Wednesday May 21, 2008 01:28AM EDT

the entire economic downturn is fuel relared due to demand of oil for the fast and developing countries, go with flow and buy oil.

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