Legacies Delivered "The Most Interesting Man in the World" has apparently found that the world is not enough for his tastes, so he is taking a one-way ticket to Mars. Jonathan Goldsmith, the central figure in the Dos Equis ad campaigns since 2006, has recorded his last commercial for the beer brand, delivering his classic line "Stay thirsty, my friends" aboard a rocket ship, as the familiar voiceover states that "his only regret, is not knowing what regret feels like." This kind of reminds me of this most interesting market and yes, there have been a few times since last fall I have felt like a trip to Mars would be a welcome reprieve. It seems like the market frequently flirts with optimism for continued growth and then suffers periods where it convulses on fears of a global economic slowdown. During these convulsions, the market is convinced oil prices are the canary in the coal mine as equities have become directly correlated with oil prices. This type of logic seems perverse when you think about it. Low energy prices, I think are still good for the broader economy? Look at the correlation below. Last week, Raymond James held its 37th Annual Institutional Investor Conference. Needless to say, the tone of the energy presentations differed dramatically even from last year. Our energy team then hosted an annual energy dinner, where more than 110 energy executives and buy-side institutional investors shared their perspectives. Below are the views which emerged. Oil prices will bounce further by year-end, and the U.S. rig count will begin to recover. The most common view was for WTI to exit the year at $40-50/Bbl. For context, our forecast is for recovery to $65 by year-end (and a 2017 average of $75), which is considerably more bullish than the consensus opinion. E&Ps aim to rebuild balance sheets before adding rigs. Over half of the respondents favor paying down debt as the most prudent use of rising cash flow for E&Ps – instead of more drilling. E&P management commentary repeatedly cited balance sheet rebuilding as well. Global oil inventories will peak by year-end. Nearly 80% of the respondents envision global inventories peaking by year end – with equal amounts thinking it will happen in 2Q, 3Q and 4Q. Labor constraints will hamper the drilling recovery. In talking to both E&Ps and service companies, labor concerns arose repeatedly, cited as why it will be difficult for the rig count to recover beyond 700-800. The deep and prolonged downturn has manifested itself in difficulty of recruiting people who have left for other industries. The Most Interesting Market I NSIDE T HIS I SSUE 1 The Most Interesting Market 2 So Where Do We Stand? 3 Updates from the Team 3.14.2016 Cody Hilbun, Wealth Advisor March Thoughts Written by: Don Milich Don Milich, Senior Vice President, Investments Max Dean, Financial Planner Source: Thompson One S&P 500 2016 YTD Chart Crude Oil 2016 YTD Chart Source: Thompson One
Transcript
Legacies Delivered Address:
"The Most Interesting Man in the World" has apparently found that the world is not enough for his tastes, so he is taking a one-way ticket to Mars. Jonathan Goldsmith, the central figure in the Dos Equis ad campaigns since 2006, has recorded his last commercial for the beer brand, delivering his classic line "Stay thirsty, my friends" aboard a rocket ship, as the familiar voiceover states that "his only regret, is not knowing what regret feels like." This kind of reminds me of this most interesting market and yes, there have been a few times since last fall I have felt like a trip to Mars would be a welcome reprieve. It seems like the market frequently flirts with optimism for continued growth and then suffers periods where it convulses on fears of a global economic slowdown. During these convulsions, the market is convinced oil prices are the canary in the coal mine as equities have become directly correlated with oil prices. This type of logic seems perverse when you think about it. Low energy prices, I think are still good for the broader economy? Look at the correlation below.
Last week, Raymond James held its 37th Annual Institutional Investor Conference. Needless to say, the tone of the energy presentations differed dramatically even from last year. Our energy team then hosted an annual energy dinner, where more than 110 energy executives and buy-side institutional investors shared their perspectives. Below are the views which emerged.
Oil prices will bounce further by year-end, and the U.S. rig count will begin to recover. The most common view was for WTI to exit the year at $40-50/Bbl. For context, our forecast is for recovery to $65 by year-end (and a 2017 average of $75), which is considerably more bullish than the consensus opinion. E&Ps aim to rebuild balance sheets before adding rigs. Over half of the respondents favor paying down debt as the most prudent use of rising cash flow for E&Ps – instead of more drilling. E&P management commentary repeatedly cited balance sheet rebuilding as well. Global oil inventories will peak by year-end. Nearly 80% of the respondents envision global inventories peaking by year end – with equal amounts thinking it will happen in 2Q, 3Q and 4Q. Labor constraints will hamper the drilling recovery. In talking to both E&Ps and service companies, labor concerns arose repeatedly, cited as why it will be difficult for the rig count to recover beyond 700-800. The deep and prolonged downturn has manifested itself in difficulty of recruiting people who have left for other industries.
Now the important question is where do we stand? Our team’s base case view is we are not heading into recession and with the thought that pictures say a lot more than words, we share the following charts for your purview.
Brian Belski- BMO Strategist. “Secular Bull Markets Are Born Out of Lost Decades: Based on historical evidence, stocks typically enter a very long period of expansion after emerging from a period of negative 10-year holding period returns. We found that, in average, these periods last for roughly 15 years and deliver average annual returns of about 16%. Given that a 10-year holding period returns emerged from negative territory six years ago, it is not unreasonable to assume that there is about 9 years and 10%+ of average annual returns left to the current bull market should performance follow historical patterns.”
Source: FactSet
Research Systems
March Thoughts Page 3
Don:
Recently Olivia took an important step in her faith journey when she choose to be baptized. She has attended a kid's small group Sunday school class at Northpoint Church for the past five years and was ready to make her public proclamation of faith. I am so glad Chad, Abbie and I were there to watch. It was one of the most special events of my life.
Cody:
One of the greatest joys of life in my opinion is having the opportunity to raise a child and the pleasures of watching them grow. London Kate will be turning 2 in May and I am amazed at how time flies by... this picture was taken after church one Sunday afternoon.
Max:
With Katherine out of town for work and the wrestling season over, I was left to my own devices for seven days. So what did I do?
Turned my “Honey-Do” list into “Honey-Done” accomplishments
Gave the dog a much needed bath…
Competed in a master’s division track and field event – the pain was temporary.
Views expressed in this newsletter are the current opinion of the author, but not necessarily those of Raymond James & Associates. The author's opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Investments in the energy sector are not suitable for all investors. Further information regarding these investments is available from your financial advisor. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US. Raymond James & Associates, Inc., Member New York Stock Exchange/SIPC.
Legacies Delivered Address:
Perimeter Location: Galleria Location: 1100 Abernathy Road 3625 Cumberland Boulevard SE Building 500, Suite 1850 Suite 150 Atlanta, GA 30328 Atlanta, GA 30339
