In case it wasn’t clear why oil prices (and gasoline, jet fuel, etc.) are up recently, the divergence between OPEC and US crude oil production is quite stark.
US output has risen further and is now almost back to all-time highs, while OPEC’s is falling and far below peak levels. It is well known, of course, that OPEC (and Saudi Arabia in particular) has capacity to produce more, but (as a cartel) is intentionally limiting supply to keep prices up. This is encouraging oil producers in the US (and elsewhere) to increase production, at least for now.

🧵 Real-time model results
We’ve been publishing a weekly report called Trader Ideas on the Interactive Brokers platform for over 2 years now, and occasionally get asked about the results for the stock ideas included in it.
So I'll summarize them here briefly . . . We’ve tracked the real-time results of the 20-stock “buy ideas” and “avoid/sell ideas” lists drawn from the S&P 500, which have been published each week since January 2021.
We also look at results with our Short-Term Risk Model (asset allocation timing tool) overlaid.

Several economic reports out this morning, led by the PPI.

PPI was higher than expected, like the CPI was, but also had significant revisions and new component weightings. Overall trend is still down but level of PPI is somewhat higher after revisions.
bls.gov/news.release/p… Housing starts and building permits were both slightly below expectations and remain fairly weak: starts were down -4.5% and permits were flat at 0.1% in January.

Initial unemployment claims were little changed at 194K, while continuing claims were up slightly to 1.696M.

Retail sales just reported for January were far above expectations, though seasonal factors are clearly having an impact.

January’s 3% surge (2.6% ex autos and gas) follows two consecutive -1.1% readings, and a similar weak December/strong January was seen last year. So it is important to look at averages to reduce the seasonal effects.

Over the last 3, 6, and 12-month periods, retail sales have grown at 3.2, 4.7, and 6.3% annualized rates, i.e., decelerating.

Excluding autos and gas, the 3/6/12-month rates are in the 5.6-7.2% range.

New blog post: Are we fighting the Fed now?

The old market adage says “don’t fight the Fed” (i.e., be cautious when the Fed is tightening policy), but it looks like markets have in fact been rallying in spite of the Fed lately. 1/9
millstreetresearch.com/blog/are-we-fi… Why are markets seemingly fighting the world’s biggest central bank? A few reasons (supporting charts are in the blog):

A lot of bad news was priced in (low valuations and sentiment) at the market lows in July, so any sign of “less bad” conditions is a reason to rally. 2/9

As investors nervously await Q2 earnings season, analysts are behaving somewhat differently. Unlike most of the last year or two, analysts have been less likely to be raising estimates for large-caps than for mid- or small-caps lately. 1/4 We break our 2000+ stock US universe into large (top 20%), mid (next 30%), and small-caps (bottom 50%) and look at the proportion of positive vs negative earnings estimate revisions. The large-caps have weakened most in the last month, while smaller-caps have held up. 2/4

New blog post: Store shelves are filling again, just not car lots
millstreetresearch.com/blog/store-she…
A breakdown of inventory/sales ratios for retailers shows rising inventory levels in most categories except auto dealers. Implies reduced inflation pressure but bumpier retail earnings. 1/7 COVID initially provoked a sharp drop in inventories held by retailers: consumers (many with stimulus checks) cleared shelves while retailers struggled to restock due to supply chain constraints. This was true across all categories of retailers tracked by the Census Bureau. 2/7

Data can be partisan: when the Univ. of Michigan Consumer Sentiment data comes out today, it is worth keeping in mind the research done by the survey director last year on the dramatic influence of political party on survey responses in recent years. 1/5
data.sca.isr.umich.edu/fetchdoc.php?d… UMich Survey Director Richard Curtin: “Unfortunately, the size of the partisan divide in expectations has completely dominated rational assessments of ongoing economic trends. This situation is likely to encourage poor decisions by consumers and policy makers alike.” 2/5

New blog post: Rare event – Europe looking better than the US
millstreetresearch.com/blog/rare-even…
For the first time in nearly a decade, our bottom-up aggregated earnings revisions and valuation indicators clearly favor European stocks over US stocks. 1/4 For most of the last 8 years, European stocks have trailed US stocks, and relative earnings momentum has likewise favored the US. Recently, however, we have seen analysts being more likely to raise earnings forecasts for European stocks than for those in the US. 2/4

New blog post: Commodity prices diverging: energy vs the rest
millstreetresearch.com/blog/commodity…
With investors still focused on inflation, we continue to track commodity prices closely. There now seems to be a greater divergence between energy prices and other commodities. 1/4 Energy prices remain in an uptrend, driven by oil, gasoline, and natural gas. Industrial metals, though, have pulled back notably and are down slightly for the year-to-date. Precious metals are range-bound while food prices are still high but pulling back from their peaks. 2/4

New blog post: A closer look at gasoline and oil prices
millstreetresearch.com/blog/a-closer-…
In response to client interest, we review a number of the key indicators we track related to gasoline and oil prices. 1/5 The key messages are:
Gasoline and oil prices are indeed high, which gets a lot of attention.
Adjusted for inflation, gas prices are back where they were in 2008 and 2011-13.
The percentage of income spent on fuel has jumped but is now only back to the long-run average. 2/5

New blog post: Corporate earnings are fine, but estimates are no longer rising broadly
millstreetresearch.com/blog/corporate…
While corporate earnings remain at record highs, analysts are no longer revising their earnings forecasts higher on average, halting a trend in place since mid-2020. 1/5 The chart shows the evolution of the 2022 and 2023 S&P 500 index EPS estimates over time. After a long period of steady increases, they have now mostly stabilized. This loss of momentum in earnings estimates is likely one reason that stock prices have corrected recently. 2/5

New blog post: CPI remains high, but commodity prices stabilizing
millstreetresearch.com/blog/cpi-remai…
The latest CPI report was above expectations, keeping pressure on the Fed. But some commodity prices have stabilized or pulled back, and inflation expectations have followed suit. 1/5 Despite a downtick this month, the year-on-year CPI readings remain far above comfort levels for the Fed or investors, no matter which particular index we look at. 2/5

New blog post: Fed coming late to tightening party
millstreetresearch.com/blog/fed-comin…
We discuss the Fed's recent monetary policy tightening moves, and highlight that the more important fiscal policy has already been tightening for some time. 1/4 While the Fed's 50bps rate hike yesterday and plans to reduce its balance sheet mark a more aggressive tightening stance, rates remain low in real terms and there is a ways to go before monetary policy will be meaningfully tight. 2/4

New blog post: Index earnings expectations for US and Europe
millstreetresearch.com/blog/index-ear…
As earnings season for Q1 gets underway, we review the current consensus expectations for the US S&P 500 and the European Stoxx 600 index. 1/4 Q1 estimates for the S&P 500 have slipped slightly over the last month, while estimates for Q2 and Q3 have continued rising.
Expected Y/Y earnings growth is still positive but now more in line with historical norms (5-10%) as the stimulus-driven earnings surge is mostly done. 2/4

New blog post: Bond market in turmoil as stocks outperform
millstreetresearch.com/blog/bond-mark…
The Treasury bond market has been especially volatile lately, and is giving mixed signals. Meanwhile, the stock market has outperformed bonds by a historically wide margin over the last month. 1/4 Long-term Treasury bonds are in a bear market by the traditional rule of thumb (20% decline), down -23% since July 2020 and -16% just since November 2021. Implied volatility in bonds is also much higher versus normal than is the case in stocks. 2/4

New blog post: Large-cap estimate revisions holding up much better than small-caps
millstreetresearch.com/blog/large-cap…
Our indicators of analyst earnings estimate revisions in the US corroborate our top-down macro views that show large-cap fundamentals holding up better than small-caps. 1/5 Our broad US stock universe shows analysts raising estimates proportionally more often for large-cap companies than for small-caps. That is often the case historically, but the differential has widened in favor of large-caps recently. 2/5

New blog post: Why aren't you more bearish?
millstreetresearch.com/blog/why-are-y…
Some clients have asked why we are not more bearish on equities given recent global events. We have been neutral on stocks overall since mid-February for several reasons: 1/6 Arguably much bad news has actually been priced in, or at least was a couple of weeks ago before the latest rally.
And if inflation is the concern, stocks are a better natural inflation hedge than bonds, since corporate earnings will broadly move along with inflation. 2/6

New blog post: Commodity prices post record surge, near-term inflation to follow
millstreetresearch.com/blog/commodity…
Commodity prices are the center of attention now, and with good reason. The S&P GSCI Commodity Index posted its largest 3-month percent change in its 52-year history. 1/4 While oil has attracted much of the attention, many other commodities have surged as well.
Notably, however, the big recent gains come after years of flat to lower prices, leaving prices in most commodity categories only moderately above their levels of 10 years ago. 2/4

New blog post: Macro events overshadow a positive earnings season
millstreetresearch.com/blog/macro-eve…
Our blog entry reviews the Q4 earnings season and estimate trends, and we also note our allocation views in light of recent market volatility and developments in Ukraine. 1/5 Earnings reports for Q4 thus far (with 87% of S&P 500 reporting) have been solid if not spectacular, with 77% of companies beating expectations. Estimates for 2022 and 2023 have continued rising, versus the more common pattern of trimming estimates as the year goes on. 2/5

New blog post: Volatility returns as investors adjust to policy outlook
millstreetresearch.com/blog/volatilit…
Volatility in both stocks and bonds has risen recently as investors reposition portfolios in response to the changing macro policy backdrop, including today's Fed meeting. 1/4 Monetary and fiscal policy are both expected to become less stimulative this year. The Fed is already on track to end bond purchases soon, and is expected to raise rates several times this year.
Markets expect a 1% policy rate a year from now, and 1.5-1.7% in two years. 2/4