Market Says, “Drill, Baby, Drill”
It’s been a tough year for the Stock Market. Fund performances are down across the board. So far this year, the Dow Jones Industrial Average is down 10%. And we’ve only completed eight months.
And the way that equities are currently behaving, it’s almost a sure-fired cinch that this year will go down as one of the worst performing years in a long time.
And yet there is one group of stocks that have had a stellar performance. The only group, along with defensive Utility stocks, to show a positive return this year. That group is the Energy Companies. That’s right, the group that Washington likes to hate. Those companies that President Biden said he would put out of business. The companies that most environmentalists want to trash, good old energy stocks are up and up big this year.
While such darlings of Wall Street as Walt Disney, Microsoft, and JP Morgan Chase are all down by more than 20% this year, energy shines, and the group is up 33%. Chevron is the most elevated component on the Dow, with a gain of better than 40% this year, while our other integrated oil company, Exxon Mobile, is up over 60%.
You would expect the kind of high performance from some new issue tech stock, not from two companies over a hundred years old and among the most despised in America.
Interestingly, both companies are at the epicenter of our country’s economic future.
Let’s begin by stating what has to be glaringly apparent to anyone with a background in finance. One man in America should take credit for this incredible performance, especially the oil and gas companies. And that man is our President Joe Biden. By single handed putting a halt to new production and transportation (remember Keystone XL Pipeline?), Biden has done more for the price of existing production than anyone could imagine.
I expect that any minute now, we’ll start to hear his fellow Democrats yelling for a Windfall Profits tax for “Big Oil.” Imagine that Biden calls for putting oil companies out of business. And the result is record profits. Talk about perverse.
You may think giving one man, our President, all the credit is a little excessive. But I think it’s well deserved. So, in a nutshell, that’s how we got here.
I don’t have to tell you we have a challenging path ahead. Where that future path will lead is yet to be determined. In so many ways, our financial future hangs in the balance. We face high inflation, declining productivity (when was the last time you saw that?), an aging workforce, and financial challenges around the globe (can you say Bricks Nations?).
At times like this, we can turn to the wisdom of Mr. Market. Mr. Market has a research staff second to none. Millions make up Mr. Market’s brain trust. From the most sophisticated computer systems, including now A.I. To the seasoned financial professional, fund managers, and traders, with a few individual investors like you and I thrown in.
Acting together, it is a well-coordinated community, which in an instant, allocates capital to the sector with the highest probability of future success. In other words, the stock market is second to none in ferreting out which companies have the brightest future. And are most likely to lead us into prosperity.
The American Stock Exchanges have led this country to the thriving place we enjoy today for two centuries. American prosperity today is mainly due to our ability to allocate financial resources.
And right now, those financial markets are speaking as loudly as I can recall. They’re shouting that the road to a better economy leads straight through the oil patch. This year there has only been one choice: oil. Want to lower inflation? Drill for oil. Want to get the best return on investment? Want to have the energy to power a growing, not stagnating economy? Drill Baby Drill.
A final thought. The thing I like best about the Stock Market and the finance world is that there is no prejudice. I could tell you story after story of the analysts and traders I’ve known who know little about politics, less about sports and television. But they know, down to the 4th decimal point, the projected earning of the Wilshire 5000. Bottom line is what counts on Wall Street, little else.
Wall Street is not a place for ideologues, not a place for those who imagine a utopia. Instead, at its best, Wall Street is a place for hard-headed realists. Like the people who built this country, pragmatists are interested in creating a better nation — but constrained to work within today’s realities.
Today those realities include a mandate to provide more energy to a country in need.
To drill, baby, drill.
Economic News
The staggering energy cost is hitting hard this morning, from Ireland to Denmark to France. The Irish Times reports that one poor cafe owner’s energy bill for the last two months has been more than 10,000 Euros. While in Denmark, they’re busy reducing their future economic growth projections because of the high cost of oil and gas. And French industries have appealed to the European Commission to reduce their energy costs, but I doubt there’s much chance of that.
The Euro Area also has an energy cost crisis. Inflation for the EU rose to a record high last month of 9.1%, driven mainly by the cost of energy.
Here, in the US, the focus is on ADP’s latest report on employment. Wall Street analysts expect a big jump in the number of new workers. Up to the high 200 thousand. The ADP Report will be for June, and if it comes in at that number, it would be double the number of new jobs than the month before.
In earnings this morning, leading off will be the nation’s number one distiller: Brown Foreman, hard times are usually good for a stiff drink, and Wall Street is looking for positive results from Brown Foreman. Then reporting later this afternoon will be software company Veeva Systems, document company Mongo “B,” and discount retailer Five Bellow.
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