“Let me tell you something that we Israelis have against Moses. He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil!”
. . . Golda Meir
Greetings from Traverse City, Michigan, which is one of the prettiest spots in the country and where we spoke last night to a packed audience at the Opera House. Everyone was in a good mood given the stock market’s recent resurgence. Not in such a good mood were the Palestinians as the new U.S. Embassy opened in Jerusalem amid tragic protests, and deaths, of many Palestinians. While we will not attempt to understand the conflict, we will say that of all the worldly places we have traveled, last year’s visit to Jerusalem was truly life altering. The recent conflict, combined with the U.S. withdrawal from the Iran Nuclear Deal, has sent crude oil prices northward (we continue to like the energy stocks). Indeed, oil is trading at the highest level since 2014, and the savvy crude oil analyst Mike Rothman (Cornerstone Analytics) thinks it is going higher. As Cornerstone’s Nick Parsons writes:
“Mike’s flights are booked for the upcoming OPEC meeting in Vienna. And although we’re still six weeks from kick-off, Mike’s recent conversations with the delegations indicate that OPEC is highly likely to continue on its current course of grinding down inventory levels. Remember that the Saudi goal is to get global storages down to a level of 2.70-2.75 billion barrels: right now we’re still over 2.80 billion barrels. What does all this mean for oil investments? Our MIKER inventory model kicks out a Brent price of above $90/barrel if global storages get down to the wanted Saudi level, and oil equities still have tremendous potential to outperform the rest of the market.”
The rude crude rally has not gone unnoticed by the gasoline market where there is the potential for gasoline prices to spike this summer with prices at a four-year high amid record demand (prices). So far such price increases have not bled into the inflation figures, but the truckers are seeing the pinch. To wit (as reprised by David Lutz):
“Trucking companies increased leverage is applying added pressure to cargo costs as accelerating economic growth bolsters transportation demand and exacerbates driver scarcity. With first-quarter trucking spot rates up 27 percent from a year earlier, according to Bloomberg Intelligence, freight expenses are crimping profits at companies.”
To us, the creeping inflation, and marginally higher interest rates, suggests the economy is going to strengthen in the back half of 2018. Certainly that is what the stock market is telegraphing as earnings continue to ramp-up. As we write, the D-J Industrial Average has made it eight consecutive winning sessions, leaving the equity market very overbought in the short term. Also worth consideration is that the Industrials rarely make it more than nine straight sessions in any one direction. Consequently, there could be a pause in the upward onslaught or even an attempt to pull stocks back. However, we think the S&P 500 (SPX/2730.13) should be well supported at the 2670-2685 level and that should contain any decline barring unexpected news. Also waxing bullishly is the TD Ameritrade Investors Movement Index, which is back down to its 2015-2016 levels. That means investors are not very optimistic currently and, therefore, not buying stocks. Further, there was over $8 billion of money flows into prime money market funds last week. These are not the kind of metrics one sees at stock market tops. However, it’s May option expiration week, which has been bearish for the last nine years, and with stocks stretched for the aforementioned reason, look for some kind of pause/pullback that does not get very far.