It’s Still All About Oil

The Top

Strategists are tripping over themselves to call the top in the market on the heels of Jeff Gundlach’s call to sell everything. To be fair there are a lot of red flags but it isn’t all doom and gloom either.

The biggest challenge is the election cycle. We haven’t been here before. Two of the most un-loved candidates in a generation are the choice this year. The only poll that seems accurate is that most of the nation believes we’re on the wrong track. The uncertainty this presents for investors can’t be overstated. Sector performance is likely to be heavily influenced by the candidate that wins. Rather than pick the winner some investors are choosing to step aside.

For the most part earnings have been encouraging with few pointing to Brexit as a source of concern. However some of the macro data we’ve gotten in the last week is giving some investors pause. Last Friday’s 1.2% initial read on Q2 GDP was well below the expected 2.4%. And this comes after a very disappointing 0.8% in the first quarter. As always, all eyes will be on Friday’s employment report.


The rally off the lows earlier this year coincided almost to the day with the lows in crude. As OIL pushed higher so did the SPX in the face of a lot of bad news. Nothing could stop it. BREXIT a Military Coup in Turkey got run over by rising stock prices. Now with Crude falling below 40 stocks are struggling once again.

Falling crude prices don’t just hit oil stocks. It’s a huge issue for banks. Earlier this year bank CEOs like JP Morgan’s Jamie Dimon and BofA’s Brian Moynihan said they were concerned about loan books to the energy complex. One by one they all had to take provisions. On top of that falling crude just adds to the concerns of slowing growth around the world.

Markets are upside down. 

Today investors are buying bonds for capital appreciation and stocks for income. If there’s a bubble brewing out there it’s in the bond market. How else can you explain the insanity? Institutional investors seem to be perfectly willing to go out and buy sovereign debt with a negative rate of return. As long as negative rates continue to exist Gold will do just fine.

Left with no place to go income investors have turned to dividend stocks. Some are good and I would encourage investors to focus not on the highest yielding stocks but those that offer some combination of income and growth. Even SPY pays more than the 10 year. Defense stocks like LMT* pay more than the market and its pretty clear defense spending is going up regardless of who wins the election. Just pick up the newspaper.

*I am long LMT  & SPY in funds I manage for Belpointe