The Energy CPI and Market Trends: What's the Connection? 6 comments
August 05, 2007
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The U.S. Department of Labor Bureau of Labor Statistics has recently come out with the latest inflation and CPI figures as of the end of June 2007. Look at the following charts that I've put together to give you a better handle on what is happening. The first one shows all the major categories that make up the CPI along with the combined amount for all categories (the light blue line).
This first chart shows the annual percent changes in the CPI for all urban consumers for 2000-2007, with the percentage changes for 12 months ended in December, and 6 months for 2007.
click to enlarge
The red line that spikes in 2007 is transportation, and the bright green line that drops is apparel.
The next chart shows the two energy categories:
click to enlarge
For this last chart, I've included the annual returns for the S&P 500:
click to enlarge
Check it out! Did you notice that:
When energy commodities went down in 2001, the S&P 500 went down in 2002? When energy went up in 2002, the market went up in 2003? When the percentage increase for energy went down in 2003, the percentage increase for the market went down in 2004?
Energy commodities have spiked upwards for the first half of this year. Will this be the trend for the stock market next year?
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The weaking dollar, carey trade, subprime slime, and weakened housing sector have not worked itself out in the market. Just look at the last couple of Fridays closings. We are going to see more banks give lower guidence in the next month which will impact the S& P even more. We need strong financals and then we will have stronger footing when the S& P makes a gain. My fear this is more than a correction in the markets and a bearish turn maybe in the future.