April-Here’s To Your Wealth
Have you seen the 35% rally? Typically a monstrous 35% price movement in just over three months would grab major headlines if it was for stock prices or even interest rates. But this price movement in oil prices hasn’t created a lot of buzz. While there may not be front page headlines on this move, you can be sure that the financial markets have noticed.
We have been believers in the correlation between energy prices and prices of risk assets (like stocks) for some time and we are now seeing that play out. After being down double digits in percentage terms earlier this year, most major stock market indices except for the NASDAQ, are now in positive territory for the year. It is also visible in the high yield bond market which, after an anemic 2015 performance is now up strongly for the year.
Is there a downside to higher oil prices? For consumers there can be more pain at the pump as retail prices increase. Since the February lows of about $1.84 per gallon they have risen, according to a recent Lundberg survey, to about $2.18 per gallon. And while this is a percentage move of almost 20 percent, gasoline just doesn’t feel very expensive – at least not by historical standards. Many consumers still have hundreds – even thousands – of dollars more in discretionary income this year due to the low prices at the pump. And that will continue to buttress the stock market. But make no mistake, this is a volatile commodity and if prices fall back to the high $20 per barrel range, we may witness another downward move in stocks. If they rise much more, it could help give the Fed another reason to raise interest rates. Perhaps the best outcome is if they stabilize, and corporate earnings can return as the primary valuation metric for stock prices.
With all the political noise, news of terrorist attacks, and these wide swings in commodity prices, what is often forgotten is that corporate earnings are the biggest long-term driver of stock market prices. If earnings can regain center stage we believe we will see signs of a healthy economy and reasonable stock market valuations.
Quote of the Day:
“In investing, what is comfortable is rarely profitable.” – Robert Arnot
Mark Avallone, MBA, CFP®, CRPS®, www.PotomacWealth.com
Securities and Investment Advisory Services offered through H.Beck, Inc., Member FINRA/SIPC. 6600 Rockledge Drive, 6th Floor, Bethesda, MD 20817 301.468.0100. Potomac Wealth Advisors, LLC is not affiliated with H.Beck, Inc.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. Diversification and asset allocation do not guarantee against loss. They are methods used to manage risk.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
*The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Consult your financial professional before making any investment decision.