It happened — after weeks of dancing teasingly close to the $50 handle, Brent and WTI crude finally broke above the key mark.The feeling of waiting and waiting and waiting for $50 #oil – and then it happens while I’m sleeping during Asia time cc:@danmurtaugh
And it’s been a long wait indeed. The last time Brent LCON6, +0.22% hugged $50 a barrel was back in early November, and it hit a 12-year low in the time since then, slumped to about $27 in January.
But since the winter, both Brent and West Texas Intermediate have staged a remarkable rebound, scoring gains of around a whopping 80%. Not bad for any asset class, this whole low-yield world considered.
Few predicted such a sharp comeback — definitely not Dennis Gartman, publisher of The Gartman Letter, who famously said oil wouldn’t even hit $44 in “my lifetime.” Nor the International Energy Agency, which warned at the start of the year the oil market “could drown in oversupply.”
As blogger Valueplays over at ValueWalk puts it: “Gotta love it … as I’ve said before, oil is the only thing I know of that can go from glut to shortage in the blink of an eye.”
Enough with the history — traders are losing no time in moving on. The question this morning: Where will oil prices go next? Craig Erlam from Oanda says now we should be watching for $50 to $55 a barrel. But crude may struggle to reach that range, according to our call of the day.
But there’s another question of the day: Time to short, of go even longer? For U.S. stocks, that is. They proved for a second day yesterday that they can rally even when Fed rate-hike speculation is running high. The S&P SPX, +0.01% closed at 2,090.54, breaking above what some saw as an upside target.
Jeff Gundlach, who oversees $95 billion, doesn’t have so much faith in the current stock rally (and futures seem to agree with him). The star money manager said in an interview with MarketWatch he needs to see a true breakout above 2,200 to get excited about the S&P. Of course, the S&P has never hit 2,200, so there’s still a lot of room for disappointment.
Key market gauges
The S&P ESM6, -0.01% and Dow futures YMM6, -0.11% are lacking any real oomph this morning and are pointing to a flattish open. European stocks SXXP, +0.10% are lackluster, too, while Asian markets closed mostly higher. Oil is the star of the show, with Brent LCON6, +0.22% reaching an intraday high of $50.51 a barrel. WTI crudeCLN6, +0.20% also topped $50. The dollar DXY, -0.23% is falling, and goldGCM6, -0.12% is slightly higher.
The chart
Crude only got to rest on its laurels for a few hours, before analysts pointed out the flaws in the rally to $50 a barrel.
Stronger oil prices may actually be the one thing that can send prices sliding again. Sounds counter-intuitive? Actually, it’s not. Higher prices could encourage more producers to turn up output — particularly the more cost-sensitive U.S. shale producers — and present the world with another wave of oversupply. Which was how we got into this low-oil-price mess in the first place.
Crude’s rally might feel “unstoppable,” but significant additional production could kick in at the $50 mark, the Daily Shot newsletter said, highlighting the chart above. “Unless demand picks up, there is a natural cap in the mid-50s.”
The call
Warren Buffett may be seeing the light with Apple AAPL, -0.28% , but blogger Alex Barrow — not so much.
In a post on the Wolf Street blog, he argues the “technology S-curve” has caught up with the iPhone maker, making it a “dead money stock.”
The development of a tech company usually follows a pattern where it grows slowly at first, then takes off, before reaching a mature state in the end, Barrow explains. In the mature state, the technology is really good, everything has been optimized and there’s little room left to improve or innovate — and that’s when performance starts to flatten.
And that’s where Apple is right now, according to Barrow.
“At this point, Apple looks like a stock our team at Macro Ops wouldn’t touch with a 10-foot pole. Its brutal transition from growth stock juggernaut to blue chip value has been a tough one,” he says.
“It’s a lumbering sleepy giant that churns and grinds sideways for years and years. Think of Microsoft after the ’99 bubble deflation.”
That doesn’t mean you should necessarily run out and short Apple shares, he notes. After all, the iPhone maker still has a stable cash flow and fair valuation.
“But we absolutely don’t want to be long either,” Barrow said. “Your money is better put to work elsewhere. Something that has the potential to move a lot and actually pay you a respectable dividend yield.”
The buzz
Happy birthday, Dow! The blue-chip index turns 120 years old today.
Costco shares COST, +4.67% is shaking off a lackluster sales update for the third quarter.
Dollar General DG, +4.27% is up 3.4% ahead of the bell after its first-quarter earnings topped Wall Street views.
Abercrombie & Fitch ANF, -17.90% is on sale after sales slumped in the first quarter.
It’s not looking so hot for Guess GES, -5.71% either, after its weaker-than-expected results out last night.
Salesforce CRM, +0.45% could be a mover after a report the software maker is working with Amazon AMZN, +0.49% to expand internationally. The deal could be worth $400 million to Amazon over four years, according to The Wall Street Journal.
Billionaire Silicon Valley entrepreneur Peter Thiel reveals in an interview with the New York Times he’s been funding a secret war against Gawker to help “victims” — such as Hulk Hogan — of the online publisher’s coverage.
The economy
Weekly jobless claims dropped to 268,000, signaling the U.S. economy is past the rough patch earlier this year.
Durable-goods orders were also pretty solid, up 3.4% in April. Pending home sales follow at 10 a.m. Eastern.
We’ll get a bunch more Fed-speak today, from St. Louis Fed chief James Bullard in Singapore and Eastern Fed Gov. Jerome Powell in Washington, D.C.
The two-day G-7 meeting in Japan also kicked off. The first comments out of the gathering weren’t exactly uplifting — Japanese Prime Minister Shinzo Abe warned the sluggish commodity markets could signal another global financial crisis.
Meanwhile, President Obama said his fellow leaders were “rattled” by Trump.
The quote
“The banking industry has a tendency, driven perhaps by its combination of oligopoly, leverage and cyclicality, to get itself into ghastly collective jams from which extrication is very difficult.” — Martin Taylor, who sits on the Bank of England’s Financial Policy Committee, in a speech yesterday that described big banks as making their way across the Arctic tundra.
The stat
Getty Images
Every 10 days — That’s how often intruders breach U.S. airport fences , despite investment to fortify the nation’s airfields, according to an AP investigation.
Random reads
From hacker to stock mentor — international hacker network Anonymous now offers investment advice
Yellow is the color if you want to sell books online
Documents show different medal count for ‘American Sniper’
The iPhone was apparently invented 350 years ago
U.S. nukes and missiles are operated using 1970s-vintage computer systems and 8-inch floppy disks.
Market Watch
