An Up Week for the Dow Ends with a Flop
Ending the Week with a WhimperAfter Thursday's rally, Friday's end to the market really says a lot about the state of the average investor right now. The bear markets have turned every rally into a selling spree a few days later. In trading on Friday, sales dominated the transactions and drove markets downward. After Thursday's rally, the average investor's faith in blue chip stocks fell just as soon as share prices rose. Trading this week was especially slow, but the markets ended this week on a fear-driven whimper.
One indication of the fear in the marketplace has been the rising yields on 10-year Treasury notes. When investors are unsure about where to put their money in the long term, they'll look to bonds in order to guarantee a particular return. When yields are high, that typically means that investors are taking advantage of bonds and driving their value up. Another indication of fear has been the price of gold, which broke a falling trend as the Dow started to stagnate and recovered slightly, although it's still down quite a bit year over year.
Sears (SHLD) is SinkingThe share price of Sears Holdings (SHLD) is falling fast, and it's falling because Sears has failed to meet even modest sales projections. In short, Sears is sinking right along with its share price. In trading this week, Sears plunged from $42.20 to $28.07 per share. Until Sears quits burning through cash, share prices are likely to stay low -- although it's hard to imagine performance this bad for two weeks in a row.
Oil Prices vs Gas PricesThe price at the pump has been rising while the cost of a barrel of oil hovers around $60. The reason for that goes beyond increasing summer demand and into the way that oil refineries themselves work. In order to deal with what is typically an uptick in demand over the summer, refineries have to hire more staff to take on the season. The yearly rise in oil prices illustrates a really useful phenomenon in investing, and that is the yearly trend.
Yearly trends -- like Christmas shopping in retail and conventions in pharma and other sectors -- are driven by expectations. In the case of oil prices, the expectation of higher demand increases prices because the infrastructure must be put in place to deal with expectations. Some of the trend is built into the share price -- people expect Amazon to sell more during Christmas and the share price doesn't swing wildly -- but some movement in share prices also happens as the trend unfolds.
In the case of gas prices, the prediction for lower than normal demand has yet to be met. If sales are down, the price at the pump might start to fall. Until then, the yearly trend during the summer has always been toward more expensive gas.
HCC Insurance Holdings (HCC) the Pick of the WeekWith an increase in value of over 25%, HCC Insurance Holdings (HCC) is this week's top stock pick. Due to an upgrade to ‘buy' from ‘hold', HCC put on over $20 in value this week. Shares of HCC opened Monday at $55.87 and closed the week on Friday trading at $77.20.
Published on Jun 13, 2015By Aaron Phillips