Thursday, July 03, 2008

Sucker Rally Wiped Out

Yesterday, the S&P 500 index closed at 1261.52. Not only does this imply a decline of more than 10% since I called for a decline in the index on May 20, as this is a new record low close for the year, this means that the entire sucker rally that we've seen since March 17 (when it closed at 1276.6) has been wiped out.

Part of the reason for this sell-off is the continued increase in the price of oil, which reached yet another all time high this morning as a higher oil price hurts most companies. And at the same time the potential gains fro the companies that do benefit from a higher price, namely the oil companies, are limited by the fact that their likely record earnings are going to provoke a new windfall profits tax if and when Barack Obama is elected president, while the Democrats increase their Congressional majority.

It should further be noted that this stock market decline happens at the same time as commodity price indexes reach new all-time highs, confirming the stagflationist scenario.


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