Stocks went nowhere on Friday, capping what was a busy week for corporate earnings but a quiet week for the economy.
First, the scoreboard:
- Dow: 17,994.57, +12.05, (0.07%)
- S&P 500: 2,090.54, -0.94, (-0.04%)
- Nasdaq: 4,900.94, -44.95, (-0.91%)
- WTI crude oil: $43.73, +$0.55, (1.3%)
In a note to clients on Friday, Fundstrat’s Tom Lee noted that since 2007, the average American household has not been a buyer of stocks. Of course, many of these households saw the value of their stock holdings get cut in about half during the financial crisis and so standard loss-aversion would lead to the sensible conclusion that, well, yes, you want to stay away from stocks.
But the best way to build value in the stock market is not to time the market but spend time in it.
So the point Lee makes is that household holdings of stocks are down about 18% from their pre-crisis peak, the biggest liquidation of stocks in history and part of why Lee has been and remains bullish on stocks.
I think there are certainly things you could quibble with in this thinking — maybe individuals are just scared off from stocks in a way that will take generations to work out, for example — but Lee’s case is at least a succinct and clear argument for why the big post-crisis bull market could have another leg yet.
After a week that began with a deep decline in oil prices after a disappointing summit in Doha, oil rallied into the end of the week, closing just below $44 a barrel in the US (which was bad news for Dennis Gartman).
But writing in CLSA’s GREED & fear newsletter, Chris Wood thinks we could still be looking at anther 50% drop in oil prices to near $20 a barrel in time.
Wood’s point is that we’re still in an oversupplied market and with few signs that this is going to turn around anytime soon, what’s the reason for prices going higher?
“GREED & fear also has no claim to be an energy expert,” Wood writes. “Still, GREED & fear remains highly sceptical of this sanguine view on oil with the base case here that oil will re-visit the $20 level, sooner or later, in the absence of an effective OPEC-instigated production freeze.”
Elsewhere in oil, Schlumberger is not super excited about the industry. (Somewhat problematic, we’d concede, given the company’s position as one of the world’s largest suppliers of oilfield services.)
On Thursday after the market close, Schlumberger CEO Paal Kibsgaard said the industry is, “in a full-scale cash crisis,” added that, “This environment is expected to continue deteriorating over the coming quarter given the magnitude and erratic nature of the disruptions in activity.” So, this seems bad.
Oil rigs in the US, meanwhile, continue to shut down with the latest Baker Hughes oil rig count falling again this week to 343; in October 2014, the number of US oil rigs in use totaled 1,609.
All-day breakfast is great, whether it’s at McDonald’s or elsewhere.
Of course, McDonald’s would likely prefer that you consume this all-day breakfast at its restaurants which, during the first quarter of this year, seems to have happened.
Before the market open on Friday the fast food chain reported earnings and sales that beat estimates with US same-store sales rising 5.4% and CEO Steve Easterbrook attributing much of this increase to the company’s new menu initiatives like all-day breakfast and its McPick 2.
And not that his helped the company’s first quarter results, but reports this week said the company could soon begin offering an even bigger Big Mac.
The American Eater wins again.
Tech and millennials, at least for the purposes of this discussion, are only loosely related in that many millennials use tech.
Google reported earnings after the market close on Thursday and it was a disappointment. Earnings were light, revenues were light, but as Jillian D’Onfro noted Friday, the number analysts really didn’t like was Google’s traffic-acquisitions costs, which is how much it pays partner sites that run Google ads and services.
TAC, as this is known in the industry, totaled $3.8 billion in the first quarter and accounted for 21% of total advertising revenue, up 13% year-on-year. But the really bad number was how much TAC went to distribution partners.
As Jillian outlined, this is the money Google pays to companies like Apple to ensure that Google Search is the default option on iPhone, for example, and these costs rose 33% year-on-year. So, it’s getting harder to be Google (which, in the parlance of many folks means, “Company that dominates everything and most of all search”).
Speaking of Apple, Kif Leswing notes that Apple has a growing China problem. In 2015, China accounted for half of Apple’s revenue growth and so a souring of the company’s relationship there could be a major problem for the company.
I think since we all have iPhones we tend to think things are great at Apple — additionally, any market junkie that watches CNBC knows, if nothing else, that Apple has a lot of cash — but maybe things aren’t?
On the millennial front, Deutsche Bank economist Torsten Sløk says the idea millennials are over-indebted and that it is this debt overhang that is holding back the economy is a myth. Compared to 25-35 year olds a decade ago, today’s young people actually have less debt.
Of course, some of this debt held a decade ago was mortgage debt in the form of credit these borrowers shouldn’t have been extended anyway, but, you know, whenever you can get your story straight on young people it’s a nice thing to keep in mind.