Another interesting day. Markets shrugged off overseas weakness and have rallied over 0.5% higher on little to no real news. Much of the move appears to be driven by the 4% gain in oil which is sending materials and oil stocks substantially higher across the board. Curiously, banks are flat on the session and copper continues to trade flat.
Today’s session makes me wonder if we haven’t seen this movie before when oil ramped in the middle of last summer while China sold-off viciously. The U.S. equity market largely ignored the move in Chinese shares, but ultimately succumbed to the weakness. The risk of oil prices folding like a lawn chair are very high if hurricane season becomes a dud and the U.S. consumer continues to weaken (I would peg the odds of both at very high). Substantially higher oil prices would not only be seasonally shocking, but would crush the already weak consumer. Today’s rally based on oil seems to fly in the face of recovery hopes….Whether the market buyers have realized this yet appears uncertain….
The strength in the market is surprising and has to give the bulls some confidence. Unfortunately, the foundation of the move appears wobbly at best. Make no mistake, the v-shaped recovery that has been priced into stocks is off the table based on recent consumer data.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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