US markets fall on Libya and high oil prices

US markets fell this week, as investors became concerned that the high oil price could slow economic growth. On Friday, the S&P 500 gained 13.78 points or 1.06% to 1,319.88, while the Dow rose 61.95 points or 0.51% to 12,130.45. For the week, the S&P 500 fell 1.7% to break a 3-week streak of gains, while the Dow dropped 2.1%.

Investors had taken the unrest in Egypt quite well. However, as the situation deteriorated in Libya, the price of Brent crude rose to US$119.79 on Thursday. This caused concern among investors, as they looked at past recessions caused by high oil prices. Meanwhile, Saudi Arabia has promised to increase oil production to offset the approximately 1 million barrels/day in production that has been lost in Libya.

US data mixed

On Friday, a Thomson Reuters/University of Michigan survey showed that US consumer confidence in February rose to 77.5, the highest level since September 2009. It was higher than the 75.5 the market expected, and higher than January's 74.2.

However, US economic growth in the 4^th quarter of 2010 was revised down to 2.8% from 3.2%. It was lower than what economists expected.

Looking ahead to next week

The situation in Libyan could turn more positive next week, which would cause markets to bounce higher. However, it is more likely that the crisis in Libya has signalled the end of this rally. The fall in markets is this week could be the starting point of a correction.  After all, the S&P 500 has rise 25.8% since September, making it overbought on all measures. A combination of tightening in China, an unresolved debt crisis in the euro zone, and turmoil in the Middle East will likely send markets lower from their current levels.