Oil is out, Technology and Retailer are in…for now
The flavor for September appears to be technology and retail. While not all of these stocks are trading at their 52 weeks high, we have seen significant movements in September. Case in point, Advance Micro Devices (AMD) is currently trading above $27. Just a few weeks ago, this stock was in the low 20s. Oracle (ORCL), which has been in the low teen forever, is now trading above $16. Home Depot (HD) was hammered last month and is now battling back, HD closed above $37 today (HD was trading at $33 a few weeks back). Retailers such as Best Buy (BBY) and Circuit City (CC) have also been rallying.
The fundamentals of these companies have not changed, but the view on Wall Street appears bullish for technology and retail. Attentions now are being paid to these under appreciated stocks. Why is this happening? The primary reason for the movement is a direct correlation to oil and energy. During the summer months, oil was trading above $75/barrel and seems to be heading higher; it is now trading around $65/barrel. A $10 decline is significant. This decline in oil has sparked the professional on Wall Street to look elsewhere for growth. Large amount of money is moving from oil and headed towards retail and technology. Thus, we are seeing companies such as AMD, ORCL, HD, BBY nad CC benefiting.
Another reason tech and retail are strong is the FOMC factor. Given the recent economic data, most analysts believed the FOMC is done raising short term interest rate. In an environment of low oil price and stable interest rate, the economy should continue to grow at a sustainable rate. Most importantly, inflation should be tame. If all goes well, consumer should have ample disposable income to spend this Christmas.
As we have witnessed time and time again, nothing last forever on Wall Street. This could all change next week when the FOMC release their decision on Wednesday, September 20th. In my view, locking in profits on recent gains would be a prudent move as pullback is bound to happen in the coming days, especially since the DOW and NASDAQ have reached a four month high.
