The ties that bind stock and oil prices

By Markets Covestor

The steady improvement in the U.S. economy continues, with the fourth quarter GDP reading of 5%. Of particular note are the uptick in jobs, autos, and both consumer and business sentiment.

Continue Reading Below

In addition, corporate balance sheets remain in excellent condition, commodity prices are softening, financing costs are low, and the manufacturing renaissance continues.

 

 

Valuations

All in all, it’s still a good environment overall for U.S. equities, with the caveat that valuations are not as attractive as they have been.

Continue Reading Below

Volatility is normal, and I expect it to continue. In 2014, sentiment indicators such as the AAII survey were very good indicators, as the the market dipped several times when investors became too optimistic.

More recently the market’s performance seems to be correlated to oil prices, and I would welcome a day with a drop in oil prices and a rising (or at least not falling) market as I believe lower oil prices are more beneficial than harmful in the aggregate.

Most prognosticators I have read are predicting another year of high single digit to low double digit gains for the major indices which seems reasonable, and the only issue I have with it is that the consensus is almost always wrong.

My view is that as long as the economic backdrop remains favorable, I would expect markets to continue trending higher.

 

Cross currents

January is a tricky month because there are so many cross currents at work in the markets, so I don’t read anything into this year’s weak start.

After all, last year January was down 3.6%. I’d like to see both January and February be positive, and I am also watching to see if the markets take out the December low during the first quarter.








Like what you read?

Subscribe to our once-weekly email newsletter and get the best posts delivered to you in one convenient place, to browse at your leisure:

Photo Credit: Tsuda via Flickr Creative Commons

DISCLAIMER: The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.