ETF Expert

The uptrend in the broader stock market (SPDR S&P 500 TRUST SPY) has a number of investors scratching their heads. How can "stocks" discount the fact that oil has soared beyond $90 per barrel?

CNBC has been trotting out the gurus all morning long:

• A prominent economist believes that higher energy costs do not hurt the U.S. economy as much as they hurt the economy in the 1970s.  (That sound like the same "not-as-big-of-a-deal" explanation that we keep hearing about the real estate slump.)
• A fund manager states that we won’t feel portfolio pain until we approach the inflation-adjusted record highs for oil. (Curiously, the inflation-adjusted dollar figure is the same as the psychological barrier, $100 per barrel.) And,
• A popular commentator expresses the "Main Street" likelihood that gasoline at the pump is what matters. (You mean $3.00+ gas in the States is just fine by Mr. and Mrs. Consumer?)

But are things really as different in 2007 as people profess? Maybe not.

Crude is indeed hindering oil-sensitive sectors of the economy, including transportations and consumer discretionary. What’s more, technology and energy do NOT seem to be adversely affected. (As if anything could hurt Exxon!!!)

Granted, one-week trends do not adequately explain larger phenomena, such as Wall Street’s success in spite of higher oil. That said, as a barrel of crude marches towards triple digits, we can’t ignore the way that the commodity has affected popular ETFs.

Specifically, the S&P Select Energy SPDR (XLE) and the S&P Select Technology SPDR (XLK) are far outpacing the competition. Similarly, the S&P Consumer Discretionary (XLY) and the iShares Transportations Index Fund (IYT) have been "bedeviled" by $90+ oil.

Perhaps we should recognize that… some things never change. Most notably, fear and greed drive the direction of stock prices more than anything else. In fact, it is excessive greed that characterizes a market top, while it is extreme fear that presents new opportunity.

Right now, bearish sentiment (extreme fear) remains noticeably high. And as long as that remains the case, smart investors know that the markets are likely to keep climbing.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.