Weekly Market Update (week of January 24th, 2011)

Weekly Market Update
Week of January 24, 2011

The Markets:

While the recovery has continued to burn brighter, it's no thanks to the rising cost of gasoline. Most consumers are cringing over prices at the pump and, as a nationwide economic marker, it affects nearly everyone.


Gas prices hit almost $3.12/gallon on Friday, less than a dollar below the all-time high of about $4.11/gallon in July 2008.[1] Current prices have risen 12 cents a gallon (4%) in the last month alone and 39 cents (14%) over the last year. Crude oil has risen on a similar track and is currently trading at just under $90 a barrel.[2]



Though American consumers are paying the price, international oil demand and lack of supply are primarily responsible for the rising cost. Last year, worldwide demand hit a record of more than 87 million barrels a day, largely driven by strong growth in India, China, and the Middle East. Simultaneously, supply was constricted by the drilling moratorium in the Gulf of Mexico following the BP disaster, slow production growth in non-OPEC countries, and OPEC production controls.[3]



Gas prices are proving to be a critical, but unpredictable element in the economic recovery. Analysts are predicting prices to range from $3.20 to $3.75/gallon by spring, just when Americans typically hit the road.[4] Just as positive consumer sentiment can be tempered by the daily reminders of rising prices, there is also an unknown tipping point for when those prices take a toll on spending.[5]



While all this talk about rising gas prices may have you feeling less than enthusiastic, the overall economic outlook is still positive and the stock market is performing well. While some indexes fell slightly for the week, the Dow climbed 0.72%, continuing its longest winning streak since April of last year.[6] At least for now, rising gas prices aren't creating a significant drag on the economic recovery.


ECONOMIC CALENDAR:
Tuesday - Redbook, S&P Case Shiller HPI, Consumer Confidence
Wednesday - New Home Sales, EIA Petroleum Status Report
Thursday - Durable Goods Orders, Jobless Claims, Pending Home Sales
Friday - GDP, Employment Cost Index, Consumer Sentiment





Performance





Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.


Headlines

Facebook raised $1.5 billion from Goldman Sachs and Digital Sky Technologies,
giving the company an estimated value of $50 billion. Facebook confirmed that it will begin filing public financial reports by April 2012, a move likely indicative of an IPO.[7]



A 1963 Pontiac ambulance that supposedly carried the body of President John F. Kennedy after his assassination was sold at a Scottsdale, Ariz., auction Saturday night for $132,000.[8]



Existing home sales jumped 12% in December, the fifth month of gains in the past six months. While the rates are higher than expected, the median price of homes has fallen by 1% and is still down 2.9% from a year ago.[9]



Thirty-second advertising spots for 2011's Super Bowl XLV will cost about $3 million each. This year's ads contain a record number from the auto industry, while the largest advertisers include Anheuser-Busch and Dot-com firms. Many will include online features with contest components.[10]