Oil Prices Keep the Hammer on Stocks

It seems pretty clear where investors stand on $105-a-barrel oil prices. And we
probably have a pretty good idea what $110 a barrel will do for them – if
that's the direction for next week. With crude again pushing higher to finish
nearly 7% higher than a week ago, stocks were under pressure throughout
Friday's session. Despite a late push off the day's lows, equities merely
trimmed another significant selloff by about one-third. The Dow Jones Industrial
Average closed 89 points lower to 12,169, the Nasdaq fell 14 points to 2785 and
the S&P 500 was off 10 points to 1321. Helping the late push in stocks was a
minor pullback in oil prices in after-hours electronic trading – crude
ultimately retreated away from its march toward $105 a barrel after officially
closing at $104.42. The sectors that have taken a beating since the move higher
in oil began took another one on Friday   automobile makers and recreational
services felt the crush of crude's highest close since late 2008. Ford (NYSE:
F ) and General Motors (NYSE: GM ) both dropped about 2%, while stocks as varied
as Live Nation (NYSE: LYV ) Life Time Fitness (NYSE: LTM ) and Carnival (NYSE:
CUK ) all finished more-than-modestly lower as investors have to come to grips
with triple-digit oil prices – now that we've had them for three consecutive
days. Over the longer term, of course, that's an even bigger problem.
Economist David Rosenberg had a chilling note on Thursday that pointed out that
only five times in the last 70 years had the spot price for oil doubled within
two years. In all but one of those five instances, a U.S. recession was
involved. In the other, which came about in August 2005, the housing boom
postponed – but didn't derail – another recession. In December 2010, we
hit the same threshold. How confident does that make you? This, then, is the
backdrop to the next several months of the stock market, which did have its
positives on Friday – witness the ability of stocks to push higher to lock in
a gain for the week despite a 7% rise in oil, and an unemployment report that,
with all its other negatives, did seem to show a small-r recovery is viable for
now. However, with consumers increasingly crunched by fuel prices, even a
relatively weak recovery is in danger of evaporating.