Is the market too complacent about the risk of higher oil
After all, rising prices can limit consumers’ ability to spend
on everything other than gasoline, natural gas, and heating fuel. All those
products become more expensive as oil prices rise. That can be bad for the
Rising oil prices can also increase headline inflation numbers.
And higher inflation makes it harder for the Federal Reserve to cut interest
rates to keep the economy chugging ahead. That also sounds bad.
Still, crude’s impact on the economy is far less than it used to
Why Oil Prices Don’t Matter for Stocks Anymore-By Al Root
Treasury ETF (TLT) Has 2nd Biggest Weekly Drop Ever
Outside of equities, we saw a
massive move higher in Treasury yields this week and a massive drop in Treasury
bond prices. For the 20+ year Treasury ETF (TLT),
this week’s 6.34% drop was its second worst week on record since it began
trading back in 2002.
Below is a look at TLT’s historical weekly
percentage change, and we also show how TLT has performed in the weeks and
months following one-week drops of more than 5% like we saw this week. As
shown in the table, TLT has normally continued lower for a while following big
down weeks. Start a two-week
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Prior forays into negative
territory during this cycle (in 2011, 2012, 2013, and 2016) have accompanied
signs of slowing, but have also reflected the broader interest rate
environment. Slower global growth, increasingly accommodative central banks,
and some flight to safety due to trade uncertainty have all conspired to push
expected inflation rate implied by 10-year TIPS sits at about 1.5%, low
historically but still higher than the cycle low and well above the near 0% hit
in the heart of the last recession. Slower growth has minimized inflationary
pressure, but over the last three months we have seen a modest pickup in
inflation and wages.