Strong selling in the Nikkei prompted an early close of that market in early Wednesday trading and a spillover has occurred on Wall Street. I have advised my Successful Investing subscribers to take defensive action to protect their gains. If you own international or technology funds, I strongly advise you to pay close attention to those positions and aggressively abide by your pre-established stop-loss parameters as they will protect profit and principal. The Fabian Plan is doing its job.
If you need help establishing or enforcing a sell discipline, a subscription to Successful Investing will give you the important directives you need to navigate the market swings.
The major stock market indexes slipped on oil prices as tensions continue to mount over Iran’s nuclear ambitions and possible sanctions against that country. Iran is our second-largest oil provider and there is no doubt that their reaction to UN sanctions will hit us at the pumps. Oil ratcheted back up to $65 a barrel, the highest price in three months; $70 a barrel oil is a foregone conclusion. Get ready for $3 a gallon gasoline–again.
It’s fairly self-explanatory why the market reacted to the surge in oil prices. It’s an inflationary indicator, for one. For another, higher oil prices directly impact consumer spending as they just don’t have as much disposable income. Consumer spending equates to 66% of our economy.
We are keeping a watchful eye on the flattening interest-rate yield curve, as inversions have proven to be precursors of the last four economic recessions. Good news came from the manufacturing sector as capacity utilization hit a five-year high — a good sign for the economy. However, spending and the ability to keep spending is what drives our economy forward. Therefore, we maintain a cautionary stance as we keep an eye on oil and the yield curve.