US recap for Feb, 2015: The markets vs. the economy, earnings, and oil

The markets vs. the economy

Feb, 2015 was one of the best months for the S&P 500 in the past 25 years.

That said, it was a terrible month for economic data.

Will the S&P 500 catch down to US macro? Or will US macro catch up to the S&P 500?

1

Market participants are concerned because of the divergence between stock prices and economic fundamentals. As a result, the US indices and the USD index have lost momentum.

Next Friday’s nonfarm payroll report will be important for financial assets.

If it’s weak then it’s likely that 1) the markets will sell-off, 2) the USD will pullback, and 3) US Treasuries will resume their uptrend. If it’s strong then the opposite may happen.

 

Earnings

Earnings revisions are at a level that’s typically associated with NBER recessions.

Moreover, long term EPS growth rates are falling while forward P/E ratios are rising.

If the fundamentals don’t improve then valuation bulls will have a hard time justifying their optimism.

At least monthly buyback announcements are the highest they’ve been since Jan, 2000…

 

Oil

Rig counts are falling but production and inventories continue to rise.

Nevertheless, oil prices are stabilizing as traders and investors try to front run a bounce:

2

Crude oil volatility remains elevated; expect more price swings to come.

 

A few things to consider

  • Will US economic data turn around?
  • If the SPX pulls back then will the global markets hold up?
  • What happens if and when US crude stocks reach capacity?

 

$hane Obata

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