July 7, 2009
July 7, 2009 by admin
The stock market dropped sharply in trading on Monday. Investors returning from the holiday weekend moved quickly out of equities as the market appears on a path to test the 8000 point level on the low side sometime in the next week. The market has dropped almost 7% over the last three weeks as investors have grown more pessimistic towards the possibility of an economic recovery in the near future. The dismal jobs report last week has added fuel to the fire for those who believe an economic recovery will take at least another twelve months before occurring.
The market has been dropping sharply since early June. Oil prices, may have peaked for the summer when they reached $73 per barrel a few weeks back. Oil has dropped almost $10 per barrel during this time, helping to bring the average cost for a gallon of gasoline under $2.50 per gallon. The drop in oil prices could have a significant impact on consumer inflation in the second half of the year. Higher energy prices were the only component in the economy that was showing modest price improvement and the rapid decrease could bring back the discussion of deflation in the marketplace.
One area that appeared to have promising growth potential was alternative energy. The government has been aggressively pushing a green energy agenda since the start of the year. The market has seen a sharp pull back within the solar, wind power and natural gas areas as investors are trying to decipher what direction to place their capital bets. The drop in oil prices has cooled the urgency from both lawmakers and corporations to jump start alternative energy projects on a wider scale. It appears, in the short term the drop in oil prices could impact this entire sector until the balance of the economy regroups and pricing pressure begins to bring the energy discussion back into play with more urgency.
The drop with equities has been good news for long term fixed mortgage rates. Over the last thirty days, long term rates have dropped by almost half of a percent on both fifteen an thirty year loan terms. The yield on the ten year bond, has closed in on the 3.5% mark, (3.45% on Monday) shedding almost sixty basis points in the last month. The lower mortgage rates could benefit the housing market which appears to have no meaningful answer to slowing down home foreclosures. The market is likely to see foreclosures continue to move higher, in correlation with the national employment numbers. The latest figures on the housing market has shown that nearly one out of every forty homes is now in foreclosure.