Everyday, Everyday I Have the Blues
By John Stoltzfus,
Chief Investment Strategist
Keep the Faith Baby
Stocks managed to post gains on the week though they posted losses in two of five sessions
Fears of inflation tied to rising oil and other commodity prices as well as existing and projected US deficits helped push the US 10- year Treasury yield up to a new closing record high for 2018 of 2.96% last Friday.
The drama that ensued day to day and intra-day around a thirteen basis point bump upward in yield on the 10 year note (moving the yield from 2.83% on Monday to 2.96% on Friday) grabbed enough investors’ attention away from what is so far the best earnings season in seven years to cause equities to slip in the last two trading sessions of the week. Stocks still managed to post gains for the week with the Dow Jones Industrials, the S&P 500, the S&P 400 (mid-caps), the Russell 2000 (small caps) and the NASDAQ Composite (over forty percent weighted in technology related shares) respectively gaining 0.42%, 0.52%, 0.88%, 0.94% and 0.56%.
It appears to us that stocks could bounce between gains and losses for this week (or even the next few weeks) while investors and traders sort out the catalysts to justify upside and downside movement in stock prices.
For now at least we see traders happy with the recent increase in volatility while investors on the other hand ponder whether to “buy the dip” or keep their powder dry. The current market thematic reminds us that it takes all kinds to make a market and that there’s never been an all clear signal at any time in our multi-decade bench of experience.
With a little more than 17% of companies in the S&P 500 having thus far reported results a better than expected Q1 earnings season shows earnings up 25.2% on back of 10.3% revenue growth. None too shabby.
Of course it’s much too early to “call the game” but the trend is positive so far with all nine of the eleven sectors that have had companies report through last week showing positive revenue and earnings growth. Telecom and Utilities, the two smallest sectors in the benchmark, have yet to have a sector member report for the quarter.
“It might be only a matter of time before the price of oil lands on what the aforementioned up-to-now disciplined producers might consider too tempting and see them let the spigots of the “black gold” flow.”
As Oil Price Rises, Temptation to Cheat Grows
Prospects for oil prices to move higher near term have been given wide berth among traders and investors as economic recoveries abroad and stateside increase the demand for energy. Heightened geopolitical risk sourced in the Middle East along with a heavy hand on the Twitter in the White House has added to the strength seen in oil prices.
Last Wednesday the price of WTI (West Texas Intermediate) rose to $68.47 bbl., its highest level since December 2014. That said last week’s high was still more than a third below where it had stood at $107.26 bbl. on June 20, 2014. Since that time parallel and concerted economic recoveries (albeit mostly at paces considered moderate compared to prior recoveries) have developed across the globe.
Considering the efforts and discipline OPEC and its allies (as well as US producers) have shown in limiting production of oil it should be no surprise that oil has reached its current levels. As to how much further it might have to run this cycle? Demand and time will tell. It could be only a matter of time before the price of oil lands on what the aforementioned upto- now disciplined producers might consider too tempting and see them let the spigots of the “black gold” flow.
The other potential governor on the rise of the price of oil may come from alternative fuels as well as from increased efficiencies of use as technology further enables energy users to squeeze every drop of oil that they use.
The Week Ahead
This week the calendar has a bounty of economic and corporate data for investors to consider including the advance estimates for first quarter GDP from the BEA (Bureau of Economic Analysis). A widely followed poll of economists shows expectations of growth at 2.2%. If indeed the survey proves an accurate call on this gauge of the stateside economy, inflation hawks may find it a tad harder to argue their case -- at least in the near term.
For the complete report, please contact your Oppenheimer Financial Advisor.
Other Disclosures
This report is issued and approved by Oppenheimer & Co. Inc., a member of all Principal Exchanges, and SIPC. This report is distributed by Oppenheimer & Co. Inc., for informational purposes only, to its institutional and retail investor clients. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The strategist writing this report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security discussed in this report, the recipient should consider whether such investment is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal.
Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation
INVESTMENT STRATEGY
should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.
This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. The S&P 500 Index is an unmanaged value-weighted index of 500 common stocks that is generally considered representative of the U.S. stock market. The S&P 500 index figures do not reflect any fees, expenses or taxes. This research is distributed in the UK and elsewhere throughout Europe, as third party research by Oppenheimer Europe Ltd, which is authorized and regulated by the Financial Conduct Authority (FCA). This research is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This report is for distribution only to persons who are eligible counterparties or professional clients and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the UK only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) High Net Worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. In particular, this material is not for distribution to, and should not be relied upon by, retail clients, as defined under the rules of the FCA. Neither the FCA’s protection rules nor compensation scheme may be applied. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright © Oppenheimer & Co. Inc. 2015.