A two-dollar drop in the price of oil instigated an all-around rout in commodities, which saw the prices of gold and silver lower by $20 and 60c, respectively. Mining and oil services shares were likewise smacked with huge losses in the range of 5-7%. I've read a lot of commentary recently regarding the swoon in commodities prices, especially of oil, blaming (or crediting) the price drops on a softening economy. I don't buy that explanation because if such an outlook were ubiquitous, stocks would be falling, too.
What appears to be occurring is an unwinding of speculative premiums, perhaps sparked by the Amaranth fiasco, the easing of geopolitical tensions, or a combination of factors. In the meantime, evidence continues to mount that the housing downturn will be more damaging than most previously suspected. At what point traders become cognizant enough to shift psychology, I don't know.
In an accomplishment carrying little more than symbolic weight, bulls managed to push the Dow to a new, all-time closing high, breaking the January 2000 record by a mere five points. The summer rally has been highly concentrated large-cap stocks, a fact exemplified by the Dow setting its high in solitude. Despite the impertinence of this record, it would have been gratifying for tortured bears to see this record denied before the next downswing, but alas, it is not to be.
If the performance of retailers today is any clue, the psychological shift point is still a ways out. A 3% rise in the Johnson Redbook report for last week's sales made yesterday's poor report from Wal-Mart a distant memory. Retailers rose about 1.6% as a group, and Wal-Mart itself rose nearly 2% as if this general retail report negated the specific report from WMT. There is still simply too much money sloshing around, and until it finds a reason to slosh into another asset class, equity bears are likely to continue to be disappointed.