(Houston)

The oil market has been doing very well for the last year and a half or so, and has performed especially strongly in 2018, outperforming every major asset class. However, US oil prices fell over 4% yesterday on growing fears of a boost in supply, following a 5% drop last Wednesday. Most of the gains in the market over the last 18 months have been because of coordinated supply cuts by world oil powers. However, while there still are some supply constraint issues on the table (e.g. US sanctions on Iran), the increasing worry is that production may rise more than expected, which would bring prices back down. Further, the US is indicating it may start to use some of its strategic oil reserves in order to avoid another sharp move higher in prices.

FINSUM: To be honest, we have been surprised by how well OPEC has been able to hold the output cut alliance together, so we really should not doubt their ability to continue to do so. That said, we do see at least a plateau coming in prices.

(Washington)

President Trump faced nothing short of public and political outrage in the US yesterday, after he essentially sided with Russia’s view of the 2016 election meddling scandal. When asked about Russia’ alleged meddling in the election, Trump insinuated that he believed Putin’s side of the story more than that of US intelligence agencies (though he did not say this outright). That sparked widespread condemnation from political foes and allies alike.

FINSUM: Whatever you think of Trump’s comments, most might agree that these are some of his most provocative and risky comments yet. The reason being that appearing to “side” with Russia might undermine some of his own nationalist voter base.

(New York)

US financial shares might be in for a quick ride higher. Bank of America’s earnings came in 33% higher than last year, leading to a blowout for the sector. The news followed strong earnings from JP Morgan and Citi. BAML’s shares rose over 4% on the news with one analyst commenting that the numbers were “almost all you could have hoped for”. Rising interest rates were a key factor in the increasing earnings, as banks earned more from net interest margins.

FINSUM: These are great numbers, but they may only be temporary. Consumers have not yet started demanding higher interest payments on savings, but once they do (and we think they will), then banks’ net interest margins will start shrinking again.

(Washington)

Something very odd has been going on in markets for the last few weeks—investors are completely tuning out politics. The political situation both domestically and internationally has grown steadily worse in recent weeks. The US has a growing trade war with China, Brexit is a complete mess, Trump is meddling with allies etc., yet markets continue to move higher. Even emerging markets have rallied.

FINSUM: On top of politics, recession fears are also growing. Accordingly, it is slightly concerning markets are rising. Markets have learned to not take Trump’s comments too seriously, but that lack of sensitivity might be serving investors poorly right now. The Wall Street Journal says it best: “Markets are notoriously bad at pricing changes in the political weather until they are forced to”.

(New York)

The market is currently facing a large number of headwinds: higher rates, a flattening yield curve, a growing trade war, and a high degree of international political tension. Yet, according to Barron’s, the path of least resistance for the S&P 500 may be higher. The reason why? Despite all the hovering the market has done this year, one big thing has fundamentally changed very recently—market breadth is increasing. In other words, the number of stocks which are advancing versus declining is improving. When the market does so, it is often a sign of better things to come.

FINSUM: We do take increasing breadth as a positive sign, as it reflects that investors across all sectors are feeling better and not just a handful hiding out in a few places.