Published: August 29, 2005
The major averages slid last
week for the third straight week, with financials and select technology
sectors leading the way lower. Although August has been a weak month for
the market, trading volumes have been light; the summer months tend to
bring the lowest trading volumes of the year as traders and other market
participants take summer vacations.
The market has had to cope with
several pieces of bad news over the past few weeks. First is clearly
energy -- oil and natural gas prices have been on the rise all summer
and gasoline prices are now approaching $3 per gallon in many parts of
the U.S. In the near term, hurricane activity in the Gulf of Mexico, a
key oil producing and refining region, has also exacerbated the energy
crunch.
Meanwhile, the retail sector
has been weak in recent weeks; many analysts believe that higher gas and
electricity prices are finally starting to take a bite out of consumer
spending power, especially among low-income consumers.
Another issue facing the market
is lingering concern about the U.S. housing market. Last week, Fed
Chairman Alan Greenspan issued a stern warning about the housing market,
saying that increasingly popular mortgages such as interest-only loans
could prove "disastrous" for some borrowers. The Fed chief
also warned lenders that they should "fully appreciate the risk
that some households may have trouble meeting monthly payments as
interest rates and the macroeconomic climate changes." These
comments contributed to weakness in financial and homebuilding shares
last week.
Finally, in a less-publicized
move, the Fed invited several hedge fund managers to a meeting next
month to discuss certain unauthorized trades. Some interpreted this to
mean that there is another big hedge fund blow-up in the cards similar
to the failure of Long-Term Capital Management (LTCM) in the late 1990s.
On the positive side of things,
bond yields have backed off considerably in recent weeks. Lower yields
tend to encourage more consumer spending and make it cheaper for
businesses to raise capital. In addition, the second-quarter earnings
season largely came in better than analysts had expected. But in recent
weeks, these bits of positive news have clearly been overshadowed by the
aforementioned negative factors.
Good investing!
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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Paul Tracy
founded StreetAuthority and became Editor in Chief in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
