I’ve just updated my Keeping Score page for the ugliness of October. …some sector surprises.
My worst flaw as an investor–at least, the worst that I’m aware of–is that I’m too bullish. So I have to be careful at a time like this when the stock market has been on a downtrend, to ensure that I don’t call a tactical bottom too early.
I should also point out that mutual funds have most likely been out of the market for the past few days, so the wicked intraday spikes we’ve been seeing in recent trading are more likely the work of algorithms than humans. So the end of the mutual fund fiscal year is in itself no reason for these swings to stop.
Still, it looks to me as if the lows the market established early in 2018 are holding. Also, many tech stocks, having lost a third of their value, are beginning to move up on what seems to me to be the flimsiest of positive news–a so-so earnings report or an upgrade by a brokerage house analyst.
So my guess is that the worst is over and that stocks will go sideways to up from here.
Several things to note:
–intraday swings have been unusually large, based on past instances of correction. This may just be what machine-driven markets look like
–a change in market leadership often occurs after a correction. I’m not sure what that would be in this case. I’m still thinking that IT will lead, noting, though, that chip manufacturing businesses appear to be entering one of their periodic phases of oversupply (driven by the fact that capacity is added in huge chunks, and usually by everyone at the same time)
–the long-term economic negatives recently created by Washington–large-scale deficit spending; emphasis on reviving older, inefficient industries; policy directed at breaking down global supply chains–haven’t gone away. The considerable social/cultural damage being done by the administration hasn’t, either. At some point, these factors will begin to retard stock market progress, although they may be issues for 2019.
I’ve just updated my Keeping Score page for the end of the stock market “summer.” …continuing S&P 500 strength.
About a week ago, Saudi Arabia and Russia, two of the three largest oil producers in the world (the US is #1), announced they were discussing the mechanics of restoring half of the 1.8 million barrels of daily output foreign companies have been withholding from the market since 2016.
…to stop the price from advancing above $80.
To be honest, I’m a bit surprised that oil has gotten this high. But producing countries have held to their cutback pledges to a far greater degree than they have in the past, with the result that the mammoth glut of oil in temporary storage a couple of years ago is mostly gone. In addition, the economy of Venezuela is melting away, turning down that country’s output of heavy crude favored by US refiners. Also, the world is worried that unilateral US withdrawal from the Iranian nuclear agreement may mean the loss of 500,000 daily barrels from that source.
On the other hand, short-term demand for oil is relatively inflexible. Because of this, even small changes in supply or demand can result in large swings in price. An extra 1% -2% in production drove the price from $100+ to $24 in 2014-15, for example. The same amount of underproduction caused the current rebound. So in hindsight, $80 shouldn’t have been so shocking.
Two factors, I think. There must be significant internal pressure among producing countries to get even a small amount more foreign exchange by cheating on quotas. Letting everyone get something may make it harder for one rogue nation to break ranks.
More importantly, a $100 price seems to trigger significant global conservation efforts, as well as to shift the search for petroleum substitutes into a higher gear. So somewhere around $80 may be as good as it gets for producers. And it leaves some headroom if efforts to hold the price at $80 fail.
My guess is that most of the upward move for the oils is over. I think there’s still some reason to be interested in financially leveraged shale oil producers in the US as they unwind the restrictions their lenders have placed on them.
I’ve just updated my Current Market Tactics page.
I’ve just updated my Keeping Score page to show S&P results for June, the second quarter and the first half. Sideways to up is my best market guess.
I’ve just updated my Current Market Tactics page. …toppy?