Commodities Rule, Stocks Drool
Kevin Cook here minding the store for Steve.
While stocks continued to mark time around their new way station at S&P 1,360, gold and oil stole the show. The barbarous relic surged $20 (over 1%) to reclaim $1,775 and black gold in the form of WTI crude made a brief run above $106, while the Brent flavor surged over 1% to nearly capture $123 per barrel.
This is not the sign of a top in equities my friends. Sure, we are due for a pause. But as I've been saying for weeks, a lot of portfolio managers missed this rally from S&P 1,300 and they would love a pullback (myself included). That's why any decline in stocks will likely find lots of buyers before 1,330 and lots more before 1,300. Which probably means we continue to grind higher -- even if all the good economic news appears to be priced in.
Speaking of the secular bull market in commodities like energy, President Obama's name came up a couple of times today in my conversations. First, he's going after dividends ala the Warren Buffett argument that the rich are just too rich and they shouldn't have such favorable tax treatment. I'm wondering what effect this will have on that wonderful energy investor vehicle known as the MLP. Second, some Democrats appealed to the White House to release oil from the Strategic reserves.
Thank common sense the Obama administration declined to comment. There's only 696 million barrels in the SPR. It wouldn't make much of a difference for prices in the long run anyway. What would really make a difference is getting enough pipeline infrastructure in place to make use of the 600,000 barrels per day being produced in places like the Bakken shale. But I digress as I think about E&P, refiner, and oilfield service stocks I favor.
For my take on how the VIX can be interpreted at these levels and how it also might support the "grind higher" thesis, see my recent video linked below. And regarding why commodities are still in full bull mode, and if that lasts, check out Tracey Ryniec's Real-Time Insight post on China cutting rates. We know Quantitative Easing keeps gold and oil bid, but Tracey is looking at easy money making less of a difference if China has a hard landing. Join in the conversation and share your thoughts.
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