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The Market's Three Driving Forces, March 27, 2006
Summary: Three factors stand out as the forces driving stock prices: oil prices, interest rates, and profit growth. Oil and rates drive prices mostly in the very short-term. Profits provide the underlying longer-term driving force and that underlying foundation remains very sound. Nevertheless, the volatile movements in interest rates and oil prices often distract investors. With the economy and corporate profits doing well, the market should perform reasonably well, even as the Fed raises interest rates somewhat more than is currently expected by the market.
Three factors stand out as the forces driving stock prices: oil prices, interest rates, and profit growth. Oil and rates drive prices mostly in the very short-term. Profits provide the underlying longer-term driving force and that underlying foundation remains very sound. Nevertheless, the volatile movements in interest rates and oil prices often distract investors. With the economy and corporate profits doing well, the market should perform reasonably well, even as the Fed raises interest rates somewhat more than is currently expected by the market.
Oil prices remain very volatile, yet prices have remained within a trading range for some time now. Still, each sizeable movement elicits a response from stock prices. Oil prices respond sharply to the veiled treats of foreign despots or revolutionaries, even though supplies haven't been disrupted materially, demonstrating the high degree of fear that investors must share. Still, inventories have increased over recent weeks...
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This section contains 412 words (approx. 2 pages at 300 words per page) |
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