May 9, 2008, 4:53 pm
Posted by David Gaffen
Oil and financial issues, once the glorious rock upon which the market built strong rallies, are now acting as a crushing weight under which investors are being stoned. Equities sank again, closing out the week in decidedly sour fashion, due to another run-up in crude oil and disappointing results from American International Group Inc., which ended the day lower by 8.8%, at $40.28 a share. The last few days have served to remind investors that the Fed’s effort to address the Bear Stearns situation in mid-March is not equivalent to shaking the excesses out of the economic system. “We’ve had a 12% rally over the last two months or so and maybe everyone thought we were completely out of the woods,” says Phil Orlando, chief equity market strategist for Federated Investors. Equities have, for now, entered a downtrend that may be a short-lived one, but more weakness can be expected, Mr. Orlando says. “We’re in the midst of a normal healthy consolidation pattern,” he says.
Crude prices continue to exact a cost on major shipping companies, such as FedEx Corp., which after the close cut its estimates for fiscal fourth-quarter earnings, the second time the company has felt the need to reduce such estimates. Since March, the company’s fuel prices have risen by 7% from its previous estimate, forcing it to knock down its estimates. CFO Alan Graf said that the company has hedges in place, “they cannot keep pace in the short-term with rapidly rising fuel prices.” And for that matter, the demand side of the equation isn’t doing the company any favors, either – the economy remains weak, hurting revenue. The admissions from FedEx follow similarly disappointing news from United Parcel Service, which said in April that demand had slowed to the point of what could be considered a recession.
