Rate Hikes Coming In June & September

Flat Stock Market On Monday

The S&P 500 was up 0.09% as it gave back most of its gains from the morning. The Dow now has an 8 day winning streak. The Russell 2000, which is the closest major index to its all-time high, was down 0.4%. This flat market supports my thesis that the stock market is in ‘wait and see’ mode. The rally last week was justified, but now investors want to see some improvement in the economic data.

One data point which I’ll be looking at closely is the retail sales report on Tuesday. There was a string of negative month over month results until March which saw a 0.6% gain. The consensus is for a 0.3% gain on the headline number and a 0.4% growth rate for the control group. If these results beat expectations, we could see stocks move up further.

The market is overbought in the past week of trading, but can move higher if the fundamentals permit. The 14 day RSI is at 54 which is neither overbought, nor oversold. The CNN Fear and Greed Index is also at 54 which is neutral. Another up day would push those to the highest point they’ve been at in a while, further supporting the notion that the correction is over.

Oil Price Shock Could Lead To The End Of The Cycle

Oil was up 26 cents to $70.96 as the stockpiles which pushed oil into the $30s in 2016 have been eliminated. Oil is a boom and bust commodity. We are now in the boom stages; I admit I have been wrong to be bearish this year. Venezuela is in crisis mode as its government has collapsed. That has lead Venezuelan production to decline to the lowest level in decades. Furthermore, the Iranian sanctions could take out 400,000-500,000 barrels of production per day.

WTI is about $7 below Brent, which is the highest difference since December, because of the potential for more shale production. There are 7,700 drilled but uncompleted wells. Clearly, oil price increases will spur inflation, pushing this expansion to its brink. Either the demand weakens during the summer driving season as price pressures prove to be too much or demand is strong, prices rally further, and then demand starts to falter.

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