Will there be a Santa Clause rally?
Will Santa Claus show up for the markets in this short holiday week? We believe there is a good chance. This could be encouraged by declining gasoline prices that can be compared to each licensed drive receiving a tax cut. (More in the video)
Oil takes away last week’s market gains
Last week the Fed raised interest rates. Fed Chair, Janet Yellen, said that they will not be in a hurry to raise rates again. Many of the news media networks however, are reporting that everyone is worried the Fed will raise rates three or four times in 2016. We believe this is a little aggressive. The market was up Monday through Wednesday before the decision, but gave back all the gains as oil came back in to the picture.
What is the break even point with oil?
A client asked us last week, “What is the break even point with oil?” Domestically, the break even point is $32 per barrel. The point is lowering with technology and fracking. The international break even point varies. Libya needs $180 per barrel, Qatar needs $80 per barrel, Russia and Saudi Arabia’s budgets call for $105 per barrel, and Iran is $130 per barrel. The geopolitical impact is great, as many of these countries are facing deficits. International and domestic companies say they need $60 per barrel to stay fiscally healthy. We still believe oil prices could go lower.
*Oil price break even data source: businessinsider.com
Oil is driving the markets
There were only 12 market days this year where the market went a different direction from the price of oil. For the majority of the year, when oil prices dropped, so did the markets. When it went up, the markets followed. This market truly has been driven by oil this year. We believe the market is still connected to oil prices.
Gasoline prices are like a tax cut
AAA came out with their national survey yesterday which reported gasoline prices are averaging nationally at $2 per gallon. That’s the size of a national $1 billion tax rebate. If you break that down by licensed driver, that equals $550 per driver in the United States. What we are not seeing yet is the consumer spending that money saved for low gasoline prices back in to the economy. During this holiday season we could see the consumer come to life.
Fiscal policy’s potential market impact
For the past several years the Fed’s monetary policy has been the only Washington institution that has moved the markets. Finally, fiscal policy is having some impact as a budget has been passed. People are now debating what kind of impact this will be. The short term effect is that it will pull forward about $110 billion dollars of fiscal spending in 2016. This should bring a .65% increase in GDP. For the first time since 2011 we will see a year over year increase in defense spending. This will help defense companies plan for the next few years. We believe this could be a very positive move for the markets in the first half of the year.
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Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
Stock investing involves risk including potential loss of principal.