The market’s recent performance suggests that investors are getting nervous. Stocks, as measured by the S&P 500, turned in their worst performance last week in about 19 months, dropping more than 3.5 percent on concerns about the signal from falling oil prices as regards the global economy. Small cap shares fared somewhat better last week, but not meaningfully so. Read more about Shaky Stocks Not Yet Ready to Topple
Health care has proven an exciting corner of the investment world lately. In fact, by a wide margin heath care has been the top-performing industry group over the last three-, six- and 12-month periods. The TCI portfolios have certainly had our share of winners in this category. Read more about Why Health Care is Fit and Getting Fitter 12-08-14
The sharp fall in oil prices engineered by Saudi Arabia will likely be fairly short-lived, and indeed it should set the stage for the next major rally in oil. While prices could stay low for another six to nine months or perhaps a little longer, odds look good that within the next 12 to 18 months oil prices will rise much closer to their all-time highs from current levels. Moreover, oil’s drop has shortened the time it will take for commodity prices in general, whose correction began in 2011 with Europe’s recession, to bottom. All this has important implications for the short- and longer-term geopolitical and economic outlook and for U.S. investors.
For the U.S., the lower oil prices are a mixed blessing. On one hand, they will put extra cash in U.S. consumers’ pockets; on the other, the country’s most dynamic industry, energy production, will crumble. For investors, we’ll note that since OPEC first flexed its muscle in the early 1970s, U.S. stock markets have never experienced major declines concurrent with a bear market in oil prices.
The two economies that will benefit the most are Europe—at least over the shorter term—and China. Both are major oil importers, and lower oil prices are a free shot in their economic arm, giving consumers extra cash without the government laying out a penny. But China stands out as the biggest winner by far, with the drop in oil a multifold blessing over the shorter and longer terms alike.
It not only hands Chinese consumers a de facto tax cut; it also gives the yuan more freedom to follow its upward trajectory. This further boosts consumer demand while allowing China to import all the military and other technology it craves. Better times in Europe will also help offset the higher yuan as European consumer spending picks up. As a bonus, China gets to buy oil on the cheap Read more about How to Profit from the Trough in Oil 12-02-14
Is the recent tumult in the energy sector a sign that investors should flee energy stocks? The quick answer is no. The turmoil does, however, give investors an opportunity to ditch some of the weaker and more poorly positioned players—mainly companies whose operations are concentrated in North America—and switch into the much stronger international entities. Read more about Ditch and Switch: What Turmoil in Oil Means for Stocks 12-01-14
A quick glance at the stock market’s performance over the past month, six months, even the past year, is apt to put a smile on your face. No doubt you also look forward to even more new highs in the months ahead. But we all know that stocks inevitably undergo corrections; even new market highs can give way to periodic retrenchments—sometimes large ones. Read more about Options Market Once More Signals Trouble Ahead 11-24-14