As vacation season starts in the US, Wall Street is bracing for a darker outlook with surging oil prices likely to crimp an economic recovery and the US Federal Reserve sounding increasingly hawkish.
The stock market, which had been on a strong run last month and early this month, now looks increasingly fragile, analysts say.
The Dow Jones Industrial Average took a drubbing in the week to Friday, losing 3.9 percent to end at 12,479.63 ahead of the three-day US Memorial Day holiday weekend.
The Standard & Poor’s 500 broad-market index slid 3.47 percent to 1,375.93 while the tech-led NASDAQ composite retreated 3.33 percent for the week to 2,444.67.
The market’s tentative rally began to unravel in the past week as crude oil shot past US$130 a barrel for the first time ever and briefly hit US$135.
To make matters worse, the markets got a clear message from the Fed that it would not lower interest rates further without a “significant” weakening of the US economic outlook.
That came in minutes from last month’s Federal Open Market Committee meeting, which indicated that the decision to lower the base rate to 2 percent was “a close call.”
Deutsche Bank economist Joseph LaVorgna said that the Fed’s inability to keep stimulating GDP growth with rate cuts could mean deeper trouble as energy prices surge.
“The record high made in oil prices seriously complicates the economic outlook,” he said. “Higher energy costs raise the risk of higher headline inflation, lower GDP growth and a Fed which cannot further cut rates for fear of unhinging inflation expectations.”
Ed Yardeni at Yardeni Research warned: “If oil prices continue to super-super spike, the outlook for both US and global economic growth would deteriorate.”
“Stock prices aren’t going up again until oil prices start coming down,” he said.
The remaining hope for the markets, the prospect of rate cuts from the Fed, now seems increasingly remote, say analysts.
“The Fed has sent a clear message that it’s not inclined to cut rates in June even if the economic picture continues to darken,” said Avery Shenfeld, economist at CIBC World Markets.
“Such a darkening seems likely in the coming week’s data, with ugly news on house prices, home sales, durable orders and personal income ... Add in soaring gasoline prices, and both equity markets and the dollar could be in for a tough week,” Shenfeld said.
Despite the increasing gloom, market watchers say the stock market may be able to regain its footing, especially if there is some moderation in oil, which according to some is showing signs of a speculative bubble.
Al Goldman at Wachovia Securities said the market could see a rally this year if investors begin to put more cash to work.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft