Fundamentals Will Return to Favor in 2009

December 31, 2008

Sector Report: Energy

It's much less painful to visit the pump these days, that's for sure. And though I hate to be the bringer of bad news, I have to warn you this trend of cheap oil won't last. I expect the price of crude to stabilize in the first half of 2009 and resume a steady march higher. I know you've probably heard lots of news to the contrary, but please don't get caught up in the enthusiasm over cheap gas. The same folks who bought into the crude craze and predicted a "super spike" to $200 per barrel are now hysterically predicting that crude oil will fall to under $30 by March. We've already seen the creep up begin thanks to OPEC production cuts and the violence in Gaza, and I expect the price of oil to continue to rise.

Sector Report: Financials

Thankfully, the worst of the meltdown in financials is over and you don't have to worry about your hometown branch disappearing. Still, there are lingering effects in the credit market. Goldman Sachs' recent announcement of a $2.1 billion loss shows that many financial firms will not return to profitability in 2009, so do not go bargain-hunting in this risky sector. It is sure to be another hard year for many banks and brokerages, but hopefully the financial sector's toxic effect on the rest of the market has been put behind us. Without the distraction in financials, the market can again focus on fundamentals.