NEW YORK — Oil prices at record highs, near $60 a barrel, late last week had a chilling affect on the stocks of sectors driven by consumer spending.
As a result, the WWD Composite Stock Index took a steep decline, dropping 3.1 percent for the week to 1,127 while the S&P 500 dropped 2.1 percent to 1,191.57.
The Dow Jones Industrial Average drooped 166 points on Thursday, and another 123 points on Friday as investors weighed in on rising fuel costs. When the dust settled, manufacturing firms and transportation companies were the hardest hit. At retail, the leading decliners suffered stock price drops on Thursday and Friday of between 2 and 4 percent.
Aside from rising fuel costs, investors also were mulling the impact of the anticipated revaluation of the Chinese yuan and the effect of tariffs imposed on Chinese goods.
On Thursday, Federal Reserve Board chairman Alan Greenspan told Congress that imposing tariffs on imports from China would have a negative impact on the economy. Greenspan also said it would be a mistake to think that an increase in the value of the yuan would increase manufacturing and create jobs in the U.S. The exchange rate is pegged at 8.28 yuan to the dollar. U.S.-based companies say China artificially undervalues the yuan, which lowers prices on exported goods by 40 percent. Greenspan, and others, say a revaluation of the yuan would stabilize China’s growing economy and bolster the U.S. economy.
Earlier in the week, Citigroup Smith Barney analysts Deborah Weinswig, Bill Sims and Kimberly Greenberger issued a report on the anticipated revaluation of the Chinese yuan. The bottom line, according to their report, is that a revaluation “will have an immaterial financial impact on U.S. retail.”
The analysts said a revaluation could push up retail price points, but added that U.S. retailers are “well-prepared for such an event.”
The analysts said they believed the revaluation would be implemented gradually. The analysts added that “product deflation may act as a countervailing force” while raw material costs for Chinese exports fall due to a higher import content. Other mitigating factors, at least for the broadlines sector, is that product deflation “could offset the inflationary impact of a currency revaluation on the cost of goods.”
This week, investors will likely continue their watch on fuel prices and the implications at retail. Some economists now are building into their economic outlook models oil prices of $70 to $80 a barrel.