When I came into the industry about 30 years ago I unknowingly cold called a legendary icon. The gentleman politely interrupted me partially through the presentation and gave me some unsolicited advice, advice that I believe is more poignant today than in years’ past.
The individual stated when everyone is doing something or there is only a universal opinion, the opposite often happens. This belief is predicated upon the simple fact that if everyone knows something and has acted upon it, any nominal change in opinion or environment can have an outsized impact.
Fast forward today. Yesterday a report by Lindsey Group LLC stated there are five stocks that have produced 63% of the return of the S & P 500. These five stocks generated 50% of the increase in the NASDAQ which is comprised of 2,616 companies. Furthermore the report indicated that 60% of NYSE listed shares are below their 200 day moving average.
Wow! Talk about market bifurcation. The five stocks responsible are Amazon, Google, Netflix, Facebook and Apple.
I have referenced past times when equities were this bifurcated, a bifurcation that ended poorly for those who owned the “must owned” stocks.
Speaking of a myopic narrative, the negative oil narrative is overwhelming, extrapolating today’s conditions into eternity. Is this a function that no one remotely suggested the collapse of oil prices even as little as eight months ago? Probably.
I believe today’s intense negative narrative is as strong as the bullish narrative seven years ago when all thought oil would reach $200 barrel by year’s end. Similar to today, everyone extrapolated current conditions into eternity.
Change is the only constant. What is different is the velocity of change predicated by some unexpected event, an event that history will regard as extraordinarily obvious.
What could change the oil narrative?
Could it be supply disruptions? I think most will agree the Middle East is in virtual chaos, a chaos amplified by American regional allies openly questioning American strategy and commitment. In years’ past such uncertainty would cause prices to surge.
Could it be that economics catches up with the oil producers?
Could it be stronger growth in the US? What are the implications of fewest weekly jobless claims since 1973? Will the Labor Participation Rate (LPR) finally start to rise as workers reenter the workforce? (Note: A strong argument can be made most of the drop in the jobless rate is the result of worker’s exiting the workforce). And then there is positive macroeconomic impact of record home prices.
No one can answer the question as to the oil narrative will change, hence the comfort in extrapolating today into eternity. But referring back to the legendary icon who later became an early career mentor until his death in the early 1990s, when everyone knows something and has acted upon it, the odds of radical change rises exponentially when all least expect.
Last night the foreign markets were mixed. London was up 0.14%, Paris up 0.38% and Frankfurt up 0.01%. Japan was down 0.67% and Hang Sang down 1.06%.
The Dow should open quietly higher, partially predicated upon the strength of AMZN’s earnings. Currently the stock is up about 18% or around $40 billion. Let the myopic mania continue! The 10-year is off 2/32 to yield 2.27%.