Housing Slump Persists

July 24, 2008

I told you! Investors distracted by falling crude oil prices and positive earnings announcements forgot about the profound weakness that still exists in the housing market.

The National Association of Realtors said home sales declined further in June after a short-lived rebound in May. The figure: Home sales dropped 2.6% in June, significantly higher than analysts' 1% forecast.

This mid-morning wake-up call reminded investors just how troubled certain sectors of the economy really are. The announcement led to a sell-off, as stock investors cashed in gains reaped from the recent rally.

Compounding the hurt was news out of Ford (F), which reported an $8.7 billion second-quarter loss. This was the worst quarterly loss EVER for Ford–in more than a century of business! The company said the falling value of its auto inventory and credit charges resulted in further write-downs. Ford's shares fell 6.8%, or 41 cents per share, to $5.62, reflecting an 82.8% drop in share value.

Lucky for us, PortfolioGrader Pro, my free stock ranking tool, blacklisted automakers early on, so we don't own any companies in the automotive sector in any of my four services.

Again, crude oil prices stabilized today after a 15% drop from its recent $147 per barrel high. The recent decline can be attributed to the following factors:

• U.S. demand for fuel has fallen off in the past month, quelling tight supply fears.
• Hurricane Dolly didn't obliterate crude oil refineries on the Gulf Coast.
• Tensions in Iran have subsided as of late.

All I can say is, enjoy the relief while it's here. There are a couple of reasons why the recent drop in crude oil prices is temporary. For starters, since the Federal Reserve won't likely raise interest rates until after the presidential election, the U.S. dollar will remain relatively weak against the euro and other currencies. Secondly, Hurricane Dolly may have missed the Gulf of Mexico, but the hurricane season has just begun! And finally, tensions in the Middle East may have subsided–for now–but they still remain high.

So remember: It's like I tell my Blue Chip Growth subscribers–our Buy List is filled to the brim with carefully selected, fundamentally superior stocks, many of which are still in the energy sector. And until PortfolioGrader Pro indicates otherwise, I'm keeping them on the Buy List.

It's not too late for you to pick up a few extra shares of your favorite energy stocks. Just be sure to run them through my free stock ranking tool to make sure they're up to snuff. To learn more about which stocks I'm specifically recommending, sign up for Blue Chip Growth today!