• 658 days Will The ECB Continue To Hike Rates?
  • 658 days Forbes: Aramco Remains Largest Company In The Middle East
  • 660 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,060 days Could Crypto Overtake Traditional Investment?
  • 1,065 days Americans Still Quitting Jobs At Record Pace
  • 1,067 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,070 days Is The Dollar Too Strong?
  • 1,070 days Big Tech Disappoints Investors on Earnings Calls
  • 1,071 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,073 days China Is Quietly Trying To Distance Itself From Russia
  • 1,073 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,077 days Crypto Investors Won Big In 2021
  • 1,077 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,078 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,080 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,081 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,084 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,085 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,085 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,087 days Are NFTs About To Take Over Gaming?
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

  1. Home
  2. Markets
  3. Other

Beware of Stocks vs Oil

How high can stocks go following the dissipation of Grexit, reiterated ECB calls to stick with its asset purchases and the stabilisation in Chinese stocks? Can equity bulls ignore the relationship between oil and stocks?

The 22% decline in oil from the May high raises the old question from early Q1: Will cutbacks from oil companies weigh on overall spending? Remember how in January, economists raised the red flag over oil prices' tumble below $50s, owing to the implications of severe cuts in capital expenditure by big oil/gas companies could, falling by as 20%, as low revenues no longer justify project finance.

Considering that energy sector capex accounts for almost 40% of total capex in S&P500 companies and non-energy capex has remained below 2008 highs as companies are busy investing in their shareholders by buying back stocks and paying dividends, what would become of the corporate spending boost to the economy?

With the economic foundation of energy companies already under assault in Q1, how will they fare today after the latest 20% tumble in prices? And what becomes of those energy-sector bonds when the Fed growing hawkishness boosts bond yields?


Energy-driven underperformance

90% of today's biggest losing shares in the S&P500 and FTSE-100 are in energy/commodity sectors. The charts below illustrate the positive correlation between the FTSE-100 and brent oil, which is comparable to that of SP500 and crude oil. Taking the FTSE100/Brent relationship, the ratio is reaching a key resistance as is the case of the SPX/Brent.

Could the Fed continue to flex its rate liftoff muscle when inflation risks succumbing back to zero%.

FTSE100/Brent Relationship Chart
Larger Image

 

Back to homepage

Leave a comment

Leave a comment