Today, the Brent crude futures exceeded $90/bbl, for the first time in the last 7 years. From the beginning of 2021, the oil price went up by  about around 67%. At the end of last year  JP Morgan forecasted that in 2022 oil price will reach $125 a barrel.   T he rally is likely to continue in the long-term due to the limited supply and the roaring post pandemic return of global demand. At the same time, after going too far and too fast, the oil prices are likely to take a breather in the short-term. Below are some thoughts explaining why we believe this. However, only time will tell if at least some of the ideas reflect reality.  According to the the agreement with the US, China is going to release some oil (quantities unknown) from its strategic reserves close to the Lunar New Year holidays between January 31 to February 6. This is part of the coordinated international plan to limit growth in oil prices.  Chinese government asked its people not to travel from b...

Is the light at the end of the tunnel a sun or a train? Today the S&P 500 entered correction territory as it broke through the magic 4,300 level, or 10% down from its peak . It remained there for the most of the day before recovering in the last hour. This was different from the few previous sessions when strength during the day was replaced by a selloff before closing (bearish sign).  The volatility and fear indicator, VIX, during the day came close to 39 (with normal values below 20) pointing towards panic selling and increased pressure from margin calls, before closing around 30 (still high). As Warren Buffet once said, “be fearful when others are greedy, and greedy when others are fearful.” We believe the time to start carefully buying certain names (for a long-term) has arrived. However,  catching a falling knife still a risk, as the market could continue its freefall or rebound in a short-term and fall further into a bear market territory (more than 20% down from the...

As expected,  Schlumberger (SLB) announced strong 4Q and Full-Year 2021 results .  The company beat t he consensus earnings per share estimates of $0.39 by $0.03, achieving a Non-GAAP EPS of $0.42. It also delivered strong revenues of $6.22B, above consensus estimate of $6.09B. Schlumberger CEO Olivier Le Peuch commented,  "Looking ahead into 2022, the industry macro fundamentals are very favorable, due to the combination of projected steady demand recovery, an increasingly tight supply market, and supportive oil prices. We believe this will result in a material step up in industry capital spending with simultaneous double-digit growth in international and North American markets. Absent any further COVID-related disruption, oil demand is expected to exceed prepandemic levels before the end of the year and to further strengthen in 2023. These favorable market conditions are strikingly similar to those experienced during the last industry supercycle, suggesting that resurge...

Trees cannot grow sky-high. Similarly, the equities that were supported by easy money from the Fed's QE and low rates and went up over the last few years showing signs of correction. If markets go down during January (the month of the highest inflows), this means that bears will be out and bulls will be hibernating for the next few months.   The S&P 500 is down by about 7% since January 3rd. Any bounces during the drop have been used by traders to sell. It looks like this trend is going to continue until the market corrects by at least 10% (for some reason, round numbers matter for traders), reaching about 4,300.  The pressure on the equities comes not only from the sky-high PEs, but also from lower than expected corporate profits and less optimistic outlooks. So far we have seen some major disappointments from large banks and Netflix. The company's weak numbers triggered a more than 20% drop in the share price premarket (as of January 20). According to some scenarios...

We expect Schlumberger (SLB) to continue its strong growth in the long-term.  Schlumberger is the largest oilfield services player, with a presence in every energy market across the globe. The company is set to capitalize on growing investments in the Oil & Gas sector's capital expenditures. Investments in the sector are ramping up due to growing oil prices, as the post pandemic global economy recovers. Massive underinvestment in the sector over recent years has contributed to the increased demand for the SLB's cervices.  Several major banks predict oil prices to remain strong throughout the year and reach $90/bbl in the 3Q22. Some even see the oil price this year exceeding $100/bbl. According to Reuters, Arathy Somasekhar, "As oil prices have surged past $80 a barrel, U.S oil and gas producers are paving the way for faster production by expanding new well completions in the Permian Basin of west Texas and New Mexico."  This week, Bank of America analysts forecast...

Our high conviction call to invest in reopening names through Travel and Leisure  stocks received a huge boost from the Delta Air Lines quarterly results and the company's CEO comments. The positive news improved the long-term outlook not only for airlines, but also for cruises and other companies in the sector. Below is the list of the top 10 holdings of the  Defiance Hotel, Airline, & Cruise ETF. On Thursday, Delta Air Lines CEO Ed Bastian said that he believes that "the worst of Omicron is behind us" as the company's operations have stabilized after a challenging holiday season.  He added that bookings look "really robust" starting President's Day weekend in February and moving on through the year. However, he expects a difficult time over the next 4-6 weeks amid seasonal slowness and the lingering impact of Omicron. "People are ready to travel. They are ready to book their spring plans. They know Omicron isn't going to be a threat to the...

Fed minutes indicated an unanimous readiness by officials to speed up tapering and rate hikes due to high inflation and low unemployment. This triggered revisions of  the 2022 economic projections, based on the sooner than expected end of large-scale asset purchases, four (instead of three) rate increases and the beginning of balance-sheet contraction. All these measures will decrease liquidity and put pressure on stock market valuations. The market expects the first interest rates to hike as soon as March (90% probability). The economy remains strong and a total increase in interest rates of around 1% (four hikes by 0.25%) should not be too difficult to absorb. Earnings season starts at the end of this week. Most sectors are likely to see good results due to the increased demand and the low base effect from the previous year. Inflation increased by 7% in December (up from the 6.8% in November), the largest jump since June 1982. Details of the CPI report have shown no signs that in...

As a rule of thumb, if the stock market gains in the first five trading days of the year, the whole year will see gains. Unfortunately, this year the S&P 500 went down by 2.4% in the first five trading days. Over the same period, the Russell 2000 Index of Small and Medium size companies went down by 2.7%, undermining the idea that Small and Medium caps with a high Beta will outperform large companies.  NASDAQ out of three major Indexes took the biggest hit. It dropped by 5.3%! This indicates a massive run from the Tech companies. Share prices for expensive safe-haven FAANGM, with proven earnings and business models, dropped along with small and medium size growth names (also with high multiples, but no earnings). The funds have been flown from the Tech sector towards Energy, Travel and Leisure, Banks and Consumer Staples. Fed plans to increase interest rates sooner than expected, growing inflation and Omicron seem to be clear by now. However, further correction of the high PE s...

Today (January 5, 2022), Dow Jones is down by more than 1%, or 392 points. S&P 500 is down by almost 2% or 93 points. This trend continues from the previous five trading days. The end of free money is in sight! The sell off in equities and the simultaneous increase in bond yields were triggered by the minutes from the Fed's December meeting. This showed that officials are ready to dial back policy help, and that an increase in interest rates is coming sooner rather than later. Fed officials expressed concerns about inflation and pointed out that the job market is almost at full employment. Consumer prices are rising at a record pace, compared to the last 40 years. The market's latest reaction was to sell unprofitable companies. For example, Technology and Ecommerce were sold, as their growth will suffer from higher rates. Pharmaceuticals were also sold, due to Omicron symptoms being less severe than anticipated. "Pseudo-bonds", FAANG s , also suffered due to t...

Officially,  Santa's rally is the last five trading days of December and first two trading days of January. Over this period the S&P gains 1.3% on average. This year, during Santa’s rally the S&P 500 increased by 1.4%. BUT, most of the gains happened in the first two days - December 27 and 28. From December 29 until January 4, the Index's performance was flat. This resulted from the poor performance of the most safe-haven mega caps, such as Meta (FB), Amazon (AMZN), Netflix (NFLX), Google (GOOGL) and Microsoft (MSFT). Apple (AAPL) was somewhat unique, as its market value went up somewhat. The two sectors that picked up the slack were Energy and Travel. From December 29 until January 4, Vanguard Energy ETF and Defiance Hotel, Airline & Cruise ETF went up by 6.2% and 4% respectively. It seems that, during Santa's rally, the market went from favoring expensive safe-haven mega-caps to favoring high-beta reopening plays that went through a bear market in November an...

The historical data summarized by DataTrek Research indicates that the years when S&P500 gains are more than 20%, the following January is likely to be flat. Though there are high chances that the S&P will have a strong first week, it is likely that the upside will diminish by the beginning of February. At the same time, statistically, the years when the S&P gains above 20% are followed by a 12 month period that produces more than a 10% average return (based on the data collected since 1945 by the Centre for Financial Research and Analysis). However, Omicron was absent during those years, as well as its potentially devastating impact on global economies. Even thought Omicron represents a threat to economies and financial markets, its relatively light symptoms and low hospitalization rate may allow investors to look past the negative effects of the new variant. More optimistic views on Omicron, strong January inflows and the expectation of solid annual returns,...