Marketplace Scratch Pad

On stocks and bonds (and oil)

Scott Jagow May 28, 2009

If you’re wondering what’s driving the stock market right now, all you have to do is look at the bond market. Yesterday, stocks took a dive because bond sales were slow. But today, stocks finished higher thanks to vigorous activity in the bond market. Here’s the key reason.

From AP:

Robust demand at an auction for Treasury debt also eased fears that the government would have to pay higher interest rates to entice buyers. Higher rates on long-term bonds would also drive up borrowing costs for consumers buying cars and homes, which in turn could endanger an economic recovery…

Analysts expect Wall Street will have to continue to grapple with worries that the government could eventually exhaust buyers’ appetite for debt with an unprecedented level of bond sales. Washington needs to raise the money to pay for its bank rescue plan and economic stimulus spending.

We could see some sharp ups and downs for a while.

Oil stocks got a lift today, too, because don’t look now, but oil is at a 6-month high around $64 a barrel. Seeking Alpha has a nice analysis of the bull and bear arguments on oil. The price of oil can certainly be one indicator of whether the economy is truly bouncing back or not, but it’s tricky.

OPEC’s recent production cuts could certainly be putting a floor under oil. Today, OPEC left production unchanged, signaling that it believes or is pretending to believe [that there will be enough demand](
is) to keep oil from falling back. Some bearish analysts are dubious. They say the fundamentals aren’t there, and that many oil investors are simply buying to establish long-term positions. And if that’s the case, it doesn’t tell us much about the prospect for demand in the coming months.

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