Every business is affected by oil. As long as crude oil remains above US$80-$85 per barrel, I’m staying defensive in stocks. The market is slowly beginning to discount another difficult period ahead for corporate earnings.

With oil prices soaring nearly 40% in just three months, companies are going to start revising their expectations for the next 3-6 months just because input costs are squeezing margins. There is just no way earnings are going to boom in the midst of surging energy costs.

If companies are being squeezed by high oil, what about the consumer? Will the American consumer come to the rescue and support a flagging economy?

The government’s US$100 billion fiscal stimulus package is now hitting American households this month. But I’ve got to wonder what an average US$1,000 check will do to boost spending? With gas prices quickly approaching US$4 per gallon and food costs sharply higher over the last 12 months, any boost in discretionary spending will largely be directed towards energy and food, not a new car or a vacation.

The sub-prime crisis is now largely history. That’s the good news. The bad news is that a new wave of write-downs lies ahead in the consumer installment debt sector. We’re also approaching a storm for earnings expectations amid high oil prices, a protracted bear market in housing and a contraction in bank credit.

ERIC ROSEMAN, Investment Director

Source: Why I’m ‘Still’ Bearish on Stocks