NEW YORK >> A long-dormant fear surfaced on Wall Street this past week as rising oil prices reminded investors that inflation might pose another threat to the uncertain economic recovery. Investors are facing a new
dilemma in rising oil pricesStocks could revisit multi-year lows, analysts say
By Amy Baldwin
Associated PressIncreasing tensions with Iraq and an oil strike in Venezuela sent already advancing crude prices even higher, and in turn thwarted the stock market's usual Santa Claus rally. The price of oil for delivery in February closed at $32.72 a barrel yesterday, and some analysts predict it could soon hit $35.
Analysts fear Wall Street will revisit five- and six-year lows made in July and October.
"I see that happening in January. I hate to break the bad news," said Gary Kaltbaum, market technician for Investors' Edge Partners in Orlando, Fla.
Inflation hasn't been a concern for months, but a higher price for crude can ripple into the rest of the economy, driving prices for all kinds of goods and services higher. What has Wall Street worried is the fact that an uptick in inflation could prompt the Federal Reserve to raise interest rates more aggressively.
Analysts have predicted that the Fed will begin raising rates next year as the economy shows more signs of strengthening. Ordinarily, such action would be viewed as a good thing, a sign that the Fed has confidence in the economy. But it becomes worrisome if inflation is also a factor -- the Fed is likely to be more vigilant if it feels the need to keep prices in line.
Stocks fell this past week, stifling the so-called Santa Claus rally the market usually enjoys when investors really look forward to the new year.
"Nervousness has been the driving factor of market activity. A little nervousness can be a depressing element on stocks," said Kevin Caron, market strategist with Ryan, Beck & Co.
But Caron said he believes the market's oil and inflation concerns will be short-lived. Political commentators predict the United States will begin military action against Iraq in late January, he noted. Stocks typically fall in anticipation of a conflict, but rebound afterward.
For the week, the Dow Jones industrial average fell 207.54, or 2.4 percent, to close at 8,303.78.
The Nasdaq composite index had a weekly loss of 14.74, or 1.1 percent, and the S&P had a weekly decline of 20.36, or 2.3 percent. The Russell 2000 index had a weekly loss of 2.72, or 0.7 percent.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,305.45, off 169.81 from last week. A year ago, the index was 10,818.57.
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