MARKET PERSPECTIVE AS ON OCTOBER 21

The market action so far this week is quite a contrast

from the volatility that we have lived through since mid

September. Yesterday, the Dow closed up 3.4%, while Japan’s

Nikkei index was up 3.5%, Hong Kong’s Hang Seng index

increased 5.3%, Russia’s benchmark jumped 4.9% and

Brazil’s Bovespa gained 8.3%.

What helped support the markets yesterday? U.S. equities traded

at stronger levels on Monday as Fed Chairman Bernanke opened

the door for further interest rate cuts, and said that he supported

additional government economic stimulus. In addition to Bernanke’s

encouraging words, subtle signs that the credit interventions are

starting to work, albeit slowly, also helped support the markets

on Monday. For instance, there was a meaningful dip in the

LIBOR interest rate, which implies that banks are becoming

more willing to lend money to one another again. This is important

since many mortgages and credit lines are tied to this rate.

The positive tone in the markets prevailed and even amplified

this morning, although market watchers pointed out that

trading volume set a monthly low, reflective of investor

“skittishness.” But the rally didn’t last long and the markets

closed off a good bit. The Dow closed down 231 points, or 2.5%,

today on worries about third-quarter earnings. The NASDAQ

and S&P 500 also lost some ground falling 4.1% and 3.1%,

respectively.

Although there is a positive tone in the market, we aren’t out

of the woods yet. Be prepared for another eventful and volatile

week. Current conditions are likely to continue for some time as

markets try to digest macroeconomic and third-quarter earnings

reports, as well as get a gauge on the extent, effectiveness and

longer-term implications of governments' financial rescue and

economic stimulus plans.

So in the current economic and investment environment, what

sectors are ripe for investment? One area of interest is the oil

and gas sector. The prices of commodities have been falling, right

along with demand and economic output. This is making for some

relatively cheap shares of oil and gas companies. And some

investors want to jump onboard now…but I say, "Not so fast!"


It's a tough call on oil and oil and gas companies at the moment as

far as the near-term direction. For one thing, it's possible that

worried consumers may continue to hang on tight to their

wallets until they have more confidence about what's going

on in the markets. So I think we should continue to wait for

signs of a solid bottoming -- in the economy as well as oil prices

-- before making any bets in this sector.