Markets viewed April’s jobs data positively erasing the week’s decline. The report helped mollify bond investors as yields on Treasuries have surged during the last two weeks on oil’s unrelenting advance to over $60/barrel.
Will the advance continue or will the markets retreat?
Bloomberg writes the S & P 500 is trading within its tightest trading range to start a year in almost a decade: roughly 125 points. The peak to trough move of 6.3% is the smallest at this point of any year since 2006 reports Bloomberg.
I can make an argument the averages will remain in a narrow range but a major rotation can occur into equities that do not dominate the indices. There are several reports suggesting the difference between the valuations of large cap behemoths that dominate the averages and the typical stock has not been this great for almost a thirty five years.
Monies ultimately will gravitate to sectors where there potentially less risk and greater reward.
Regarding the rout in Treasuries, I believe the 30 year will continue to rise in yield to around 3.50%, the result of rising commodity prices.
As I noted last week, commodities are underweighted in most accounts. I think oil will continue its advance to around $70 by mid third quarter for one simple reason. OPEC, who supplies 50% of the world’s energy needs, a NGO dominated by Saudi Arabia that is about 25% of global production, has stated its intentions to have oil over $70 by this juncture.
What will happen this week? Earning season is almost over. Results were essentially flat for the quarter. Analysts had expected profits to decline. The economic calendar is comprised of various inflation and consumer sales data. Has the rise in crude impacted both?
This week can be interesting.
Last night the foreign markets were mixed. London was up 0.11%, Paris down 1.60% and Frankfurt down 0.28%. Japan was up 1.25% and Hang Sang up 0.51%.
The Dow should open flat. The 10-year is off 6/32 to yield 2.17%.
