The price of oil has been dropping lately and gasoline prices are much more reasonable. Unfortunately, the stock market isn’t paying as much attention to oil prices anymore.
It’s not that the market doesn’t care about high energy costs, it’s just that it’s a bit of an old story now. The year 2005 was all about the price of oil, and now, there’s much more attention being paid to precious metal prices and the last big unknown-interest rates.
The new Federal Reserve Chairman has a tough job ahead, trying to balance the need to control inflation, while not choking the Main Street economy. It is going to be a difficult balancing act to maintain reasonable price stability and not steer the economy into recession.
I think this is why the broader stock market isn’t very sure of itself at the present time. January was a pretty good start to the year and fourth quarter earnings results were quite solid. Still, institutional investors remain somewhat aloof right now, not having a defined sense of the market’s near-term direction.
Predicting the stock market’s action is always guesswork, but I would suggest some caution for individual investors over the near- term. When the market doesn’t have a sense, or view, about its near-term prospects, stock prices tend to drift lower. This isn’t a scientific analysis of current market action, just my experience and “gut” feeling.
Both energy and precious metals are pulling back right now, which is only natural considering recent price strength in these sectors over the last few quarters. With this in mind, if the broader market drifts for a while, I think a new buying opportunity may develop, particularly in gold and other precious metal stocks.
Over the very near-term, I think it’s wise to sit on the sidelines here and wait for the market to pull back some more.