cows and oil

Taking A Look Around

Oil is still plummeting (alt).  Here are seven key questions, five scattered points and two confessions.  Make no mistake, the collapse in oil prices and commodities is the center of attention these days.  With that in mind, let’s take a glimpse out towards the periphery: “As fourth-quarter earnings season gets under way, investors are bracing for the softest U.S. profit growth in years (alt), pinched by collapsing oil prices and a strong dollar.  That double whammy, coupled with the highest valuations for stocks since the financial crisis, will test the market’s ability to prolong its extended bull run and will likely make for continued bumpy trading in the weeks ahead…Excluding the energy sector…earnings at companies in the S&P 500 are projected to rise 3.6%, below the 5.2% average growth rate for earnings of all S&P 500 companies over the past eight quarters…At the start of the fourth quarter, analysts had been expecting an overall profit growth rate of 8.4%.”  You may have noticed expected earnings growth for Health care stocks is 16.4%, roughly 13% higher than the median expectation.  Which makes this interesting: “in early March, the Supreme Court will hear a challenge to the Affordable Care Act that could upend the entire law…Among those who’d be hit hard by the decision would probably be health insurers such as UnitedHealth…Those firms have been big winners under Obamacare, since they’ve gained new customers and revenue, financed in part by those federal subsidies.”  Also, “the [pharmaceutical] sector’s emergence from the shadow of the so-called patent cliff has helped its forward price-earnings multiple to nearly 17 times from about 11 times three years ago…That suggests companies may find the market less forgiving of any missteps this year.”  Meanwhile, inflation expectations for 2020 through 2025 (literally we are calling this the “five-year forward five-year break-even rate”) are around 1.86%.  “The market is telling you that a rate increase from the Fed will come later rather than sooner (alt)…The data show investors are betting on a 51% chance for a rate increase by the September 2015 policy meeting and 79% by December.”  Meanwhile, Bank of America “warns that the ‘U.S. decoupling trade,’ long stocks and the dollar, is now ‘crowded’…(The trade has) limited room to advance in the short term as it seems unlikely that two legs of the trade (rising USD and falling energy) can continue without creating problems for the third leg of the trade (rising US equities).”  Meanwhile, AllianceBernstein says “avoiding crowded trades and their unraveling makes sense for many reasons, and so does thoughtful diversification.  But don’t miss out on cheap assets the crowd leaves behind.”


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