5/2-5/6/16 Charts of the Week

It would appear that investors’ concerns regarding the 7-year rally in equities coming to an end may be starting to manifest. The Wall Street Journal, with data from FactSet, recently published the chart below, showing the performance of so called “risk-off assets,” or assets whose performance typically does well when investors seek a financial safe haven, compared to equity prices…

riskonoff

Typically, when risk-off assets like gold or the Yen are performing well, it is because the Dow, S&P 500 or US Dollar are soft. On the flip side, when equities are trending up, funds typically flow from these risk-off sectors to risk-on sectors. What is surprising is that since the latest equity rally, which started in February, we have not seen risk-off asset prices fall, which says that investors may not have very much confidence in the sustainability of this bull run.

April’s jobs report certainly had some bright spots, but also some weak spots, namely in the coal mining and oil drilling industries…

april job growth

While manufacturing numbers did trend up slightly, we can pick up on a very distinct trend for the sector over the last 75 years…

mfg jobs

While there is nothing wrong with a country shifting from a goods economy to a services economy, that shift has implications that require time for adjustment. The fewer manufacturing jobs available in the US means the fewer choices that citizens have for employment, meaning that they must adapt their skill sets or move to where the jobs are. Some manufactures have reopened plants in the US for quality control purposes and to lower shipping costs, but our economy could benefit much more by expanding our manufacturing base.

Lastly we wanted to talk about oil refiners. Several weeks back, we mentioned how when oil prices fall, refiners are usually the last to see profits and revenues suffer. Unfortunately, in due time, they too are subject to the pain that can be caused by low energy prices…

refiner profits

In order to understand the importance of this data we must extrapolate; low prices mean low revenues and profits, which means that debt becomes more difficult to service, which can lead to a decline in debt ratings, which can lead to a decline in stock price. In order to offset the decline in revenues, expenses and employees are cut, which can also have a negative impact on stock prices.

The oil market is one financial sector that we are watching daily, as we do not believe the carnage is over just yet.

Happy Trading!

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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