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Investors still prefer value ahead of growth. Where is brent oil heading?

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Carlsquare
19 Apr 2022 | 3 min read
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The past week has seen a minor share price decline, notably on the New York Stock Exchange, where the S&P500 index fell by 2.4 percent. Otherwise, changes have been small, and in Europe, Paris (CAC40) and Frankfurt (DAX) have risen slightly last week. The cyclical OMX30 in Stockholm is somewhat worse off, while the non-cyclical FTSE (London) index continues to be the best performer this year.

The past week has seen a minor share price decline, notably on the New York Stock Exchange, where the S&P500 index fell by 2.4 percent. Otherwise, changes have been small, and in Europe, Paris (CAC40) and Frankfurt (DAX) have risen slightly last week. The cyclical OMX30 in Stockholm is somewhat worse off, while the non-cyclical FTSE (London) index continues to be the best performer this year.

Significant stock indices performance on Monday, April 18, 2022, in one week and this year

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Source: www.di.se,www.cnbc.com

The primary focus in the US continues to be inflation, with the annual rate at 8.5 percent as of March 31, 2022. There have been some suggestions that this may have been the peak inflation rate. However, the 10-year US Treasury yield climbed further upwards from 2.75 percent to 2.87 percent over the past week. The stock market is now looking forward to the next Fed meeting on May 3 with some trepidation. Will the Fed raise rates by 0.25 percent or 0.50 percent, or are they signaling a slower pace for the rest of 2022?

The trend has continued to be favorable for value stocks, while growth stocks have under performed. It is not surprising - that value stocks, mainly found in the banking/finance and industrial sectors, benefit from higher interest rates. At the same time, there is not the same justification for high p/e ratios for growth stocks, given increased, rising interest rates and yield requirements.

The reporting season for S&P500 companies in the US kicked off in earnest on Wednesday, April 13, with Q1 2022 results from Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, and Wells Fargo. US bank, with few exceptions, beat low revenue and profit expectations for Q1. But stock price reactions to the reports were mixed; positive in Goldman Sachs, Citigroup, and Morgan Stanley, but negative in JPM Morgan and Wells Fargo. It is despite the weak performance of financial stocks so far this year.

So far, nearly 40 S&P500 companies have reported their Q1 2022 results. In 77 percent of cases, the results have been better than analysts' expectations. However, good results do not seem enough to lift the stock market. 69 S&P500 companies will report their Q1 2022 results this week, including IBM, Johnson & Johnson, Netflix, Tesla, AT&T, Nucor, Snap, and Verizon.

The technical is not in favor of oil

Brent oil has regained some strength after China seems to be looking to ease its restrictions, meaning increased activity and worries about supply in the wake of the Ukraine crisis. However, the daily chart below shows that the oil price is trading in a large bearish descending triangle that tends to break on the downside. Going for a short position may be considered very risky as momentum is picking up (see MACD). A more attractive timing will be when (and if) brent oil breaks the support level below the USD 100-level. In such a scenario, the target price given by the formation is around 70 USD/barrel.

Brent oil price (in USD) daily one year chart

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Brent oil (in USD), five-year chart

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

 

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

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