Long energy, Short consumer discretionary

QI TAKEAWAY Oil breaking north of $100 should light up the energy patch. However, energy shock risk is not a friend to the broader stock market. Upper-income households are the biggest spenders and have the most to lose from extended stock price compression even as the Fed is forced to push ahead with tightening plans.

  1. QI’s Household Bull-Bear Tail Indicator, tracking the spread of year-ahead stock market expectations by UMich, fell to a net 12% in February; this was the least bullish read since the pandemic began, with those confident in stock market growth hitting a six-year low of 31%
  2. Per UMich, the median value of stock market investments for each third of income earners is $352,143, $83,750, and $31,250, respectively; benchmarking to January 2020, the top have had gains of $104,000, the bottom third saw no change and the middle saw a $15,000 drop
  3. The Atlanta Fed’s GDPNow forecast for Q1 2022 is now at 0.0% and Markit’s Q1 estimate has fallen from 1.3% to 1%; while oil hitting $100 should be a boon for shale producers, this could also spawn a counter-acting wealth-effect reversal among upper income consumers
Posted in Quick Quill.