Weekly Update: December 15, 2014

The Upshot of a Down Oil Market

Markets around the globe are retrenching some hard-fought gains in lockstep with the rapid decline of crude oil prices. The drop in crude prices is nothing short of a crash as Saudi Arabia, Iran, Kuwait and other smaller oil-rich nations that are bringing oil to markets as low as $10 per barrel. They are attempting to orchestrate a strategy to curb U.S. production from the shale energy boom that has America importing the least amount of oil in the past 10 years. The table below illustrates the pace with which OPEC imports have been reduced during just the past five years.

While consumers are cheering lower gasoline prices, currently averaging $2.50/gallon on a national basis, stock investors are feeling pain from how the market is responding to cheaper fuel, as it's viewing the free fall in oil prices as a net negative for global growth. Whether this perceived notion of oil is pointing to a global slowdown or whether the market has it wrong and this is simply a supply glut that will act like a massive catalyst for global economic growth isn't known as the oil correction has been so swift.


OPEC Creates Oil Slick in Energy Sector

Weekly Update: December 1, 2014

Heading into the last month of the year, typically an upbeat one for the stock market, one could suggest 'all systems go' if purely examining the Dow, S&P 500 and Nasdaq. But, while many of us in the U.S. were enjoying a Thanksgiving holiday, OPEC gathered together last Thursday and decided to hold production at current levels of 30 million barrels per day despite a majority of member nations seeking a 1.5 million barrel per day cut. Saudi Arabia and Iran, the two largest oil producers, voted not to cut, and that was like the two biggest kids on the playground deciding the score before the game is played.

West Texas Intermediate crude probed $65 per barrel in overnight trading before finding a bid that currently has oil trading up $2.53 to $68.67. The bounce is very refreshing given the doom and gloom that has encircled the entire energy sector. Last Friday's steep drop in both WTI and North Sea Brent crude could be a reaction low if and only if prices can stabilize above $65 in the days ahead. It's way too early to tell...however, the reversal from the overnight low shows that investors and traders alike believe the decline has been too extreme.


Juicy Drumsticks of Data

Weekly Update: November 24, 2014

When market valuations are being called into question, the most galvanizing scenario that would justify the primary uptrend continuing into further record territory is for the economy to deliver empirical data that support a higher market. Last week, investors got an early Christmas gift of strong data points that argue well for further stock market gains.

The Conference Board's leading economic index increased 0.9% in October, up from a downwardly revised 0.7% (from 0.8%) in September. Consensus expectations were looking for a reading of 0.6%. Leading indicators reveal strong growth and are, as suggested by their name, forward-looking. Ironically, the only component to contribute negatively to the index was stock prices. Yes, there was a 10% correction.


Investors View U.S. Market as Safe Zone

Weekly Update: November 17, 2014

By just focusing on economic data that pertain to the United States, one would not only come to the conclusion that most sectors of the economy are progressing in the right direction -- but, given the recent strength of those data, that the rest of the world must be seeing at least modest improvement as well. However, fresh signs of slowing in Japan caught global markets by surprise, demonstrating that not all QE is created equal.

Last night, Japan's Nikkei stock index posted its biggest one-day drop since August after Q3 GDP data showed that country slipping into recession, with a decline of 1.6%. This comes on the heels of that market hitting a seven-year high following the Bank of Japan's announcement of stimulus measures a week ago. This latest report all but eliminates the possibility of a further sales tax that was slated to go into effect in Japan to help pay for QE. It also shows that current fiscal policy isn't working and it requires massive reforms to Japan's labor laws and public pension structure.


Bulls Feed On Extreme Stimulus from Japan

Weekly Update: November 3, 2014

With little to no notice, Japan's central bank, in conjunction with its main government pension fund, announced before the market opened on Friday that they will jointly pump trillions more yen into the country's sluggish economy to jump-start a fresh growth phase in a highly controversial move.

Facing fresh evidence of deflationary data, the fresh injection of stimulus comes with the full endorsement of Japanese Prime Minister Shinzo Abe, moving Japan into a new era of extreme stimulus that goes beyond prior accepted central-bank fiscal models. The move comes just at a time when markets were beginning to worry about the prospect of the U.S. Federal Reserve tightening its own policy.


Another Big Week Ahead for Market Bulls

Weekly Update: October 27, 2014

Coming off the best week in the past two years, in which the S&P 500 surged 4.1%, market bulls are in a tough spot to not just hold onto the heady gains, but to find justification to substantiate and support a move for the S&P to clear its September high of 2,020. The week ahead is chock full of potential market-moving headlines that will continue to keep volatility elevated.

Just for openers, West Texas Intermediate crude traded for the second time in as many weeks below $80 per barrel this morning. According to a Goldman Sachs (GS) report sent to clients over the weekend, unless 800,000 barrels per day are taken off the market, crude prices may well test $75 without geopolitical disruption, which always adds a premium to oil prices.