For the past six months, the bulls have handled pretty much everything that has been thrown at them. Or more accurately, our heroes in horns have been able to effectively brush aside anything and everything that may have been considered even remotely negative. However, with $100 oil now being dumped on the bulls, the key question in my mind is whether this will be the issue that finally matters or just another item to be placed in the 'handled' category?
For a while last week, it looked as if the oil slick created by yet another uprising in the Middle East (or in this case, Northern Africa) might cause the bulls to lose their footing. And while oil at $100 isn't a huge surprise given the economic recovery that is taking place, the move to triple digits is coming a bit ahead of schedule. In addition, the historical results for the stock market when oil spikes up 10% or more in a short period of time simply isn't good.
For example, Birinyi and Associates tells us that last week was just the seventh time since 1982 that oil prices have jumped 10% in two days. According to their computers, Birinyi says that stocks have not done well following such an event. In fact, after such a jump in oil, the average return for the S&P 500 over the ensuing six months is -9.3%. Ouch.
Thus far though, it appears that the glass-is-half-full crowd is taking crude's recent rude rise in stride. With last week's little pullback having produced a decline of -3.6% on an intraday basis (and -2.75% on a closing basis) as well as a test of some important support levels on a short-term basis, one might argue that spike in oil prices simply provided a trigger for the pullback that just about everyone in the game had been expecting. Therefore, with the prospects for the U.S. economy continuing to improve and the entire investing world now focused on blue chips in the good 'ol USofA, the bulls might just be ready to move on.
Many experienced investors can be seen scratching and/or shaking their heads these days. With an environment where nothing seems to matter, the concept of stocks just movin' on up is causing some veterans to raise an eyebrow or two. Heck, even Friday's revised GDP number, which came in below expectations (after the initial report had also come in below expectations), didn't seem to phase those looking to blue skies ahead.
Ditto for the concept of North Korea's insistence on making trouble, the monetary tightening campaigns in places China and India, the inflation that is creeping in around the world, and the debt problems of Europe and many of the U.S.'s biggest states. Nope, with the Saudi's announcing on Friday that they were opening up the spigot a little wider in order to handle the shortfall of oil that is no longer flowing out of Libya (reports suggest that production is down by two-thirds), the bulls appear to be getting out the 'handled' stamp once again.
What about the attack on an oil facility in Iraq over the weekend or the threats that Kim Jong Il is making toward the U.S. and South Korea, you ask? No worries, the bulls will likely stamp the report and keep on keepin' on - at least for now.
Turning to this morning... With oil prices moving lower (last quotes shows oil futures down -0.5%), stockmarkets around the globe are improving and the futures here in the U.S. are pointing to a strong start to what could be a nice day of month-end window dressing.
On the Economic front... Personal Incomes rose by +1.0% in January, which was above the consensus expectations for an increase of +0.5%. The December level was unchanged at +0.4%. Personal Spending (now called “Consumption”) for the month rose by just +0.2%, which was below the expectations of +0.3% and the December’s revised reading of +0.5%. The Core PCE (think inflation) came in up +0.1%, which was below expectations for +0.1%.
Thought for the day: Remember, you've got to be in it in order to win it...
Pre-Game Indicators
Here are the Pre-Market indicators we review each morning before the opening bell...
- Major Foreign Markets:
- Australia: -0.05%
- Shanghai: +0.93%
- Hong Kong: +1.42%
- Japan: +0.92%
- France: +0.28%
- Germany: +0.39%
- London: -0.43%
- Crude Oil Futures: -$0.52 to $97.36
- Gold: +$4.80 to $1414.10
- Dollar: lower against the Yen, Euro and Pound
- 10-Year Bond Yield: Currently trading at 3.412
- Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +6.28
- Dow Jones Industrial Average: +50
- NASDAQ Composite: +11.16
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