The Dow plunged 379 points Thursday on one word: oil. (OK, oil and Home Depot's earnings report, but let's not split hairs.) With U.S. sailors dead in a likely terrorist attack on a Navy ship in the Persian Gulf and Israel bombing Palestinian headquarters in retaliation for a Palestinian lynching of Israeli soldiers (and with Iraq threatening to suspend crude production in some wacky euro-support blackmail scheme and Venezuela mired in oil-labor troubles) there was only one commodity scarcer than confidence Thursday, and that was black gold.
So much for the Strategic Petroleum Reserve. Those oil-price reductions were wiped out as November crude touched $37 (right near the September 10-year high) during the session and settled at $35.50 a barrel, and heating oil prices have hit new highs again. So much for the NASDAQ's signs of life Wednesday afternoon; the tech index started the day up but got swept into a 93-point slide as visions of the '70s danced in investor's heads.
Higher oil prices mean higher energy costs, which mean higher manufacturing, shipping, and transportation costs which could mean inflation. Higher oil prices also mean higher prices at the pump, which tends to act like a consumption tax on consumers (this is where Home Depot fits in, which could mean stagnation. And in Europe, higher oil prices have about twice the dampening effect and that means lower sales for U.S. companies. Stagnation again.
And never underestimate the power of a few explosions. Investors have been worrying quietly about oil for months, but corporate earnings related to oil, but which incorporate a larger set of worries have been at center stage. But when rockets flew, this wasn't a solely economic headache. This had the whiff of war, spurring a particular kind of panic-selling analysts said they hadn't seen since Saddam stormed Kuwait.
Time to buy? Sure, there's talk of a floor the Dow and NASDAQ are both back to milestones they last saw in 1999. Friday's session, in fact, began with some bargain-hunting, even in the face of a report that the inflation-harbinger Producer Price Index jumped 0.9 percent in September, double expectations. But when your hoped-for floor depends ene in part on the shifting sands of Middle East tensions, it's hard to picture a sustained, multi-session rally starting anytime soon.
Unless you're in oil stocks.