主题：【文摘】【美国经济】“能源价格如此高涨，通涨或是衰退，还是兼而有之。” -- 西风陶陶

Energy Costs Pose Threat to Stock Rally

Sat November 22, 2003 04:40 PM ET

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By Dick Satran

NEW YORK (Reuters) - A booming economy is fueling the stock market's year-long rise. But what fuels the economy?

Oil, of course, and lots of it. Even in the information age, a broad range of industries, from retailing to air travel, rise and fall with the price of oil.

Oil prices surged this week and stocks fell sharply after a series of deadly bombings hit Turkey's commercial capital in Istanbul, starting last weekend.

The bombings were a reminder for some stock market investors that there are still major risks of attacks and political instability in the Middle East.

Oil market investors did not need to be reminded. Crude oil prices have stayed strong for most of this year, and this week worked their way to the highest level since before the Iraq war, at over $33 a barrel.

Some stock market analysts are worried that this could start to hurt equities, and the economy, as well.

It wasn't supposed to be this way. Energy prices were expected to plunge after the Iraq war, and many economists have built low energy prices into their forecasts for an expanding economy with low inflation. But those models are starting to become suspect.

"The stock market is in a state of suspended animation while the bad news, such as higher oil prices, is offset by the good news of a strong economy," said Steve East, chief economist at brokerage FBR & Co. in Arlington, Virginia.

Rising oil could tip the balance, he said. The biggest threat, though, is not a return of the runaway inflation that ruled in the energy crunch of the 1970s. There are too many deflationary forces at work to spark widespread price rises.

A more likely scenario is for high energy prices to choke off consumer spending and cut into the amount of cash businesses have to invest in jobs and other expansion plans.

"When oil prices reach this level, either you get recession or inflation, or both, as you did in the 1970s," said Peter Beutel of Cameron Hanover, an energy risk research firm in New Canaan, Connecticut.

While energy efficiency has dramatically reduced the impact of rising oil prices, energy costs still have a huge impact. Beutel says that in the last 30 years, every time crude has topped $30, a recession has followed in 15 to 18 months.

Most energy analysts still hold the view that an abundance of supply will eventually push energy costs lower. But Beutel says the damage might already have been done. In the post-Sept. 11 era, energy prices have stayed high in part because a so-called "risk premium" for potential attacks is keeping prices unusually high.

Already, the "premium" has added an estimated $300 billion to energy costs, Beutel calculates. "That money has to come out of people's pockets."

"The real risk is on the consumer side," agreed East, the FBR economist. Discretionary income is low for many Americans, although their spending power was pumped up this year by the Bush tax cuts. Now, it's being drained by the highest prices at the pumps during the pre-Christmas season in years.

"Consumers will feel it, once the balm of the tax rebates wears off," said East. "It's a worry: Every extra dollar spent at the gasoline pump or to heat the house is a dollar less for spending at the mall."

The stock market, of course, gets high marks for doing its job -- forecasting this year's economic recovery. Last fall, when gloom had descended over the business world and investment was at the lowest level in years, the stock market began its powerful rise. Nine months later, the U.S. economy lurched upward with 7 percent GDP growth and surging corporate profits.

Now, most economists are forecasting slower growth, and the stock market could start to do the same.

"The good news is now (accounted for) in the stock market," said East. "Going forward, the market probably has some upside. But the big move has already happened."

Stocks have been showing signs of weakening over the past two weeks despite stronger economic data. East said a recent plunge in the dollar could be a major factor in both declining stock prices and rising oil.

Foreigners have pulled back sharply on purchases of U.S. securities, he notes, largely because of the dollar fears. Because oil is traded in dollars, each decline in the currency means it takes more dollars to buy a barrel of oil.

The dollar has declined 20 percent over the past year against major global currencies and is expected to fall still more. The same global risk factors that are boosting oil prices have been undermining the greenback.

Despite worries about a weaker dollar and higher oil, most stock investors have been maintaining an upbeat view of the future, said Michael Murphy, managing director of equity trading at Wachovia Securities. Many are worried that there is "more risk being out than in" the market.

"Investors and traders have a way of picking things out and focusing on them, and right now it's the stronger economy and stronger earnings," Murphy said. "People are not really focusing on oil prices. But maybe they should." Previous 1| 2