For the broader market, we’ve long followed a concept we call the “volatility smile.” Simply put, broader stock market volatility is high early in the stages of a bull market, falls to low levels in the middle of a major rally and then rises again in the latter stages of a bull market. And, of course, volatility usually rises sharply during a bear market.
On only five occasions over this period has the S&P 500 given up more than 2 percent of its value in the final month and a half of the year. We’re not inclined to fight that seasonal record. Looking ahead to 2018, 65 weeks have passed since the S&P 500 last endured a correction of 2 percent or more. We’d be surprised if stocks don’t break this historic winning streak at some point in the first quarter of 2018.
On a price to book metric, the energy sector trades at a 50 percent discount to its 20-year average. That makes it the cheapest sector in the emerging markets universe. Our favorite company fits well with our Asia-focused investment thesis and current geopolitical trends.
Given the uncertainty and volatility in the energy sector, we prefer midstream names that offer the best leverage to volumetric growth stories and have the balance sheet strength to pursue joint ventures with cash-strapped rivals.
Crude-oil prices collapsed last week due to a combination of fundamental and technical factors.On the fundamental front, the rapid recovery in US oil production has been and will remain the biggest story in 2017. Odds are good (better than 50 percent) that WTI will approach the low end of our anticipated $40 to $45 per barrel price range before stabilizing.
The breakdown in oil prices dominated financial headlines over the past week. WTI had ranged between $50.50 and $51.50 per barrel for much of 2017 until the commodity tumbled through this floor, the psychologically important price of $50 per barrel and the 200-day moving average of $48.67 per barrel. What happened?
The big story for energy markets in the first half of 2017 will be a stronger-than-expected surge in US shale oil production that keeps the lid on global oil prices. To take advantage, we’re adding a midstream processing and pipeline company to the portfolio.
DISCLAIMER: Capitalist Times, LLC is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment advisor. You are responsible for your own investment decisions. All information contained in our newsletters or on our website(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence and consider obtaining professional advice before making any investment decision. As a condition to accessing Capitalist Times materials and websites, you agree to our Terms and Conditions of Use, available here including without limitation all disclaimers of warranties and limitations on liability contained therein. Owners, employees and writers may hold positions in the securities that are discussed in our newsletters or on our website.