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2007-03-07 :: Energy and Cyclicals Power Ahead


As you can see from the graph above of Schlumberger (the oil services giant) the correction last week never happened for this company. Similar graphs can be found in many of the cyclical stocks that are closely tied with the economy – see Foster Wheeler or General Cable for examples of companies that are also powering back quite nicely. Conversely, the defensive stocks appear to be in quite a freefall – see McDonalds, Procter & Gamble and Colgate Palmolive.

I’ve been writing over the last several months that any company that would benefit from a stronger economy and falling interest rates will begin to outperform the large cap defensive stocks that were winners last year. It sure looks like we have that shift happening right now. Fortunately, these are also the stocks that are the foundations of our portfolios, so today is a nice “up” day for us when the broader market is barely treading water.

If you look at the interest rate futures charts, you’ll see that the market is pricing in a Fed rate cut significantly sooner than anyone believed a few weeks ago. With the prospect that the Fed will cut rates sooner rather than later, the sectors that benefit from rate cuts (including Utilities) are on fire today. This much interest in these sectors looks like we have some hedge fund buying going on…but after last week, we’ll take all the positive news we can get!

More later!

Mark