The S&P index of international oil stocks rose 7.8 per cent on Wednesday and Thursday, its biggest two-day advance this decade, on expectations that producers would cut output enough to boost prices. Exxon rose 14 per cent since 2 March, while Texaco jumped 22 per cent and Mobil added 16 per cent. Still, money managers weren't optimistic that the stocks would be able to hold their gains.
"It's a short-term event," said Robert Froehlich, fund manager at Scudder Kemper Investments. "The fundamental price of oil is driven more by demand than supply, and we have an overabundance of oil." Crude topped $15 (pounds 6.15) a barrel for the first time in five months as Opec oil producers agreed to idle almost 3 per cent of world output. Investors remain concerned that supplies are too high to justify such a big gain. "We have been down this road before, and I am not convinced oil stocks have more room to rise," said Bryan Piskorowski, analyst with Prudential Securities.
For the week, the Dow industrials gained 1.4 per cent, the S&P 500 added 1.5 per cent, and the Nasdaq 1.9 per cent. Many are forecasting that the Dow will slip in coming days. "Our models suggest if we go through 10,000, it could be a long wait for 11,000 - or we may drift down," said Douglas Cliggott, a strategist with JP Morgan. He maintains his year-end target of 9,300 for the Dow.
"For those of us who work in the markets, it's just another day," said John Bartlett, senior portfolio manager for Commerce Funds in St. Louis. Still, Commerce Funds is reducing the equity allocation in its balanced portfolio to 55 per cent from 60 per cent and increasing the bond portion to 45 per cent from 40 per cent on lingering concern that prices are too high relative to earnings.
The earnings growth that could justify higher share prices may not be on the horizon. Some of the companies that propelled the S&P 500 and Nasdaq higher have been issuing sales warnings. Oracle reported unexpectedly weak sales growth and Microsoft said it expects sales to fall short of estimates in its current quarter because of a delay in the introduction of Office 2000.