A fresh wave of economic worries swept across Wall Street this week, aggravated by a spike in
wholesale prices, dismaying corporate results, and oil trading above $100 a barrel. Some investors were encouraged by indications of the next cut in interest rates. Analysts continued to urge caution, but offered some upbeat advice for a down market.
Price Front News
Starting out the week was marked by inflation worries. The producer price index rose 1 percent in January, the government reported. That was twice as big a jump as economists had expected. During the last year, wholesale inflation was the strongest it has been since 1981. (Read full story here).
Oil prices powered the surge, reaching new highs and prompting worries about what the added costs would mean for businesses and consumers.
And amid all this, Federal Reserve Chairman Ben Bernanke testified on Capitol Hill -- hinting at another round of rate cuts. (Read full story here.)
The words "stagflation" and "recession" were on everyone's lips, but Barry James of James Advantage Funds was unexpectedly bullish, urging investment in non-cyclical stocks like Procter & Gamble, Colgate Palmolive, McDonald's and Archer Daniels Midland.
"Then, I think the techs have been been so beaten down, there's some real opportunities," he said. "You look at Hewlett Packard, for instance, or Seagate , or Lockheed Martin." Click here for James' full comments.
Newly-released data showed sales of new and existing homes fell in January, and pending home sales were down in December.
Home Depot reported the first annual sales decline in its history. Declines in the overall housing sector doubtless played the major role, but UBS hardlines retail analyst Brian Nagel suggested that the company has problems of its own, and its chief competitor might be a better investment. (Click here for full story).
"I think Lowe'sis still better positioned here," he said. "I still view them as the market-share grabber."
Bond Insurer Deals and Dalliance
Credit market concerns, particularly the financial standing of the bond insurers that backstop debt transactions, also dominated Wall Street headlines.
One significant development was that billionaire investor Wilbur Ross said he will invest as much as $1 billion in bond insurer Assured Guaranty, a conservative, Bermuda-based company. (Click here for full story).
Meantime, a snag developed in the attempt to rescue Ambac Financial Group . The bailout effort ran into trouble on Wednesday when the bond rating agencies said they wanted to see more capital injected into the bond insurer. A consortium of banks had already agreed to come up with $2.5 billion in capital.(Click here for full story).
Adding to the financial tumult, AIG posted a $5.3 billion quarterly loss, after booking a big charge to account for its exposure to credit derivatives. (Click here for full story.)
So is it time to start buying up those troubled financial stocks?
"No, I don't think it's time to be diving back into financials," warned David Spika of WHG Funds. "I think ultimately there'll be an opportunity to do that, but I still think you want to focus on the areas of strength in the market." (Click here for his full comments.)
But Jason Trennert, managing partner and chief investment strategist of Strategas Research Partners, opened the door a little on financials. (Click here for his full comments).
"I'm in 'chicken financials' right now," he said.
"'Chicken financials' I describe as asset managers, so, Schwab, Legg Mason, Waddell & Reid; I'm also in...boutique investment banks, so, Evercore and Greenhill."
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