The U.S. equity market ended the week on a positive note, reversing a two-day downtrend that saw the Dow Jones Industrial Average and the S&P 500 Index dip below the 12,000 and 1,300 marks, respectively.  The two indexes had not been below those two psychologically significant levels since the last day of January.  A noteworthy drop in oil prices and a decent retail sales report pushed stocks higher after a sluggish start to the trading day. By the closing bell, the Dow 30, the NASDAQ, and the S&P 500 Index were up 60, 15, and nine points, respectively. However, today’s gains notwithstanding, the aforementioned indexes ended the week lower than where they started.

The equity market reacted favorably to a 2% drop in crude oil prices today.  (In recent weeks, concerns have surfaced that escalating energy costs will be a big blow to the ongoing global economic recovery.)  Triggering the drop was the prospect of falling oil demand from Japan, the world's third-largest oil consumer, as well as the failure of the anticipated protests in Saudi Arabia to draw large crowds.  The likely drop in demand for oil from Japan is the result of the massive earthquake and tsunami that rocked the island nation last night. The earthquake and tsunami forced many multinational companies to close factories, fight fires, and move workers. Short term, the big concern will be how much damage these natural disasters did to Japan’s fragile economy, which plays an important role in international trade.

The economic news on these shores continues to be encouraging.  This morning, the closely watched report on retail sales was issued by the Commerce Department. It was reasonably positive, as retail sales rose 1.0% in February and the January sales figure was revised upward.  This key issuance suggests that consumers are continuing to spend aggressively, and is yet another sign that the domestic economy is continuing to strengthen. The retail sales report, though, did not provide much of a boost to the consumer cyclical sector, as the majority of stocks in that group were only up marginally. Part of the reason could be disappointing news from Aeropostale (ARO). The apparel retailer lowered its guidance for the current quarter and for fiscal 2011. However, it was a good day for the energy, basic materials, and industrials groups.
Meanwhile, it was a mixed day for commodities. While crude oil futures were under pressure from the get go, March gold contracts were up nearly $10 an ounce. It was also another good day for cotton futures, which have been on a remarkable run for quite some time. Conversely, soybean, corn, lean hog, coffee, and lumber futures were weak.

Looking ahead, the economic news picks up next week with reports due on housing starts, industrial production, and the leading indicators. The Labor Department will also release its latest readings on the Producer Price Index and the Consumer Price Index. The Federal Open Market Committee begins its two-day meeting on Tuesday, in addition. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.