New Sentiment Indicator

It’s always interesting to see new metrics which attempt to give added insight. We have the consumer confidence index, the estimate on how much consumers plan to spend on Christmas gifts, and the consumer’s opinion on where the stock market will be in the next year. All three of those sentiment readings are at multi year highs. Unsurprisingly, the new indicator we’re reviewing tells the same story. As you can see from the chart below, the survey on households planning to take a vacation in the next 6 months is at the highest rate ever. There also appears to be more seasonality in the past few years of data. Considering the fact that this chart goes along with the narrative that the consumer is very excited, but spending at a more tepid rate, this chart is worth noting. If it painted a bearish picture, I would ignore it. It’s probably better to just review the stock returns of the vacation oriented names. Carnival stock is up 28% in the past year, confirming this reading.

The Oil Market & Energy Stocks

The chart below shows the price of Brent oil with labels on specific market moving events. As you can see, the price has been rallying since July. The cuts were extended by 9 months in May. Lately, there has been speculation about the cuts being extended further. At this point, it seems like a no-brainer that the cuts will be continued because if they ended, OPEC will end up right where it started; the cuts will have been useless. OPEC will be meeting on November 30th. As of now, there’s no plan on what decision will be made (as far as the length of the cuts). OPEC needs to convince Russia that the cuts are necessary.

Russia thinks it’s too early to announce a decision. The market appears to be pricing in the cuts being extended to the end of 2018, so if they aren’t extended, there will probably be drawdown in crude prices. Lukoil’s CEO said the deal should end if oil gets to $60. Currently WTI is at $56.68 and Brent is at $62.72. I think it’s weird to put a price target for the decision because if oil were to rally further, it would fall back down if the cuts were ended. It’s better to make a decision based on the supply and demand dynamics instead of near term price speculation. As of the current plan, the cuts will end in March. If a decision isn’t made in November, oil may selloff which would encourage OPEC to quickly come to a decision on extending the cuts in the following weeks.