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OPEC is continuing its price-war strategy against U.S. shale, an effort reaffirmed just last week when Saudi Arabia’s energy minister said his country’s output strategy “is a reliable policy and we won’t change it.” The market is shuddering at the thought of Iranian crude hitting the market as economic sanctions are lifted in the months to come.
Goldman Sachs recently warned clients that a drop to the $20-a-barrel level could be necessary to force the production cuts needed to balance supply and demand. Energy stocks and the high-yield bonds of shale producers will hitch their fate to whether this scenario plays out.
The only positive development for energy in recent weeks has been the political rift incited by Saudi Arabia over the weekend when it executed a Shia cleric who had long been a thorn in the side of the Sunni regime. Protesters in Iran, which is largely Shiite, set fire to the Saudi embassy in Tehran. The Saudis then broke relations with Iran. If traders sense there is a chance of armed conflict between the two exporters that could interrupt the transport of oil out of the Persian Gulf, the price of crude could get a major boost.
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Because of the drag from a stronger dollar (which hits foreign earnings) and weak oil prices (which hits energy-sector profits), overall S&P 500 earnings growth is expected to record a drop in the fourth quarter for the third consecutive quarter, according to FactSet. That has not happened since the financial crisis of 2008-09.
Specifically, earnings are expected to decline 4.7% in the quarter vs. the same period in 2014. This is a big markdown from the 0.6% drop expected at the end of September. Energy and material earnings are the big drag here. Analysts are pretty dour on the outlook for energy companies’ fundamentals in 2016 as well, with aggregate earnings estimates down 15% since September for a year-over-year earnings decline of 8% now expected for the calendar year.
It’s certainly possible that bulls could step into the breach here with sentiment depressed and expectations low. Energy stocks would be prime candidates to lead that charge normally, but with earnings structurally restrained by the oil glut it will likely be up to the usual suspects, health care and technology, to save the day for bulls.
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America Is Graying Gracefully
A lot of experts are trying to explain why the market was so flat in 2015. One good theory is that the population of the United States is aging, and becoming more risk averse. To learn more about how fast the country is graying, I visited the U.S. Census Bureau website, which has quite a font of information if you want to kill a few hours going through presentations and tables.
— The Census Bureau projects that the U.S. population will be 322,762,018 on Jan. 1, 2016. This represents an increase of 2,472,745, or 0.77%, from New Year’s Day 2015. Since 2010, the population has grown by 14,016,480, or 4.54%.
— In 2016, the United States is expected to experience one birth every eight seconds and one death every 10 seconds. Meanwhile, net international migration is expected to add one person to the U.S. population every 29 seconds. The combination of births, deaths and net international migration increases the U.S. population by one person every 17 seconds.
— The projected world population on Jan. 1 is 7,295,889,256, an increase of 77,918,825, or 1.08%, from New Year’s Day 2015. During January 2016, 4.3 births and 1.8 deaths are expected worldwide every second, according to the Census Bureau.
For an up to date assessment of the population, click here to see the U.S. and world Pop Clock.
Digging a little deeper, I was surprised to learn that the median age in our country was 28.1 in 1970, is 37.8 today, and is projected by the Census Bureau to be 41 in 2060.
Some other stats from the Census projections:
— The U.S. population is projected to rise from 314 million in 2012 to 420 million in 2060; the 400 million mark is expected to be reached in 2051.
— The percentage change in the population by age group over the next 45 years is expected to be largest for the five-year cohort aged 65 and older, as better medicine and nutrition help people stay alive longer. The size of the cohort aged 65-69 is projected to grow 64% by 2040; 70-74, 104%; 75-79, 131%; 80-84, 130% and 85+, 208%.
— The percentage of people identifying as Anglo is projected to decline to the statistical minority by 2043.
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— The latest state to reach the 10 million in population threshold is North Carolina. The chart above shows the most populous states, led by California (39.1 million); Texas (27.4 million); Florida (20.2 million); New York (19.7 million); Illinois (12.8 million); Pennsylvania (12.8 million); Ohio (11.6 million); Georgia (10.2 million); and North Carolina (10.0 million).
For more projections from the U.S. Census Bureau, click here and here. All in all, you can see why health care should continue to be a key focus of investment over the next several decades.
Best wishes,
Jon Markman
{ 22 comments }
good report, jon. the first half of your report on oil is spot on. it was cheap oil caused by over supply that squeezed margins of the large oil companies and drove down the stock markets. not too hard to figure that one out. but the underlying is still improving, not in spite of cheap oil but because of it. oil will find a bottom this year and a healthy economy will reveal itself. i won’t be surprised to see the home builders having a hard time keeping up with demand this spring.
the second half of your report. i’m an old guy and i invest more and spend more than ever. i can’t take it with me so i might as well have some fun with it, and stocks are the only decent return nowadays leaving no place else to invest. i’m sure there’s a lot of boomers like me. plus these investment will become inheritances that will soon fuel inflation.
Jon, you and your partners need to really discuss your overall outlooks on all subjects as you seem to provide different price points and strategies. Just yesterday Larry said that oil had bottomed at the $37 range yet here today you indicate that it has much further to decline. So which is it????
look at it like this dave. oil prices should go up this spring when the driving season starts because the demand will catch up with the supply. so the first quarter of this year should be a bottoming process. the cure for cheap oil is cheap oil, just like the cure for expensive oil is expensive oil. it will self correct soon.
So let’s see, how long did it take the cure for expensive oil to correct? Well, I doubt cheap oil wil take anywhere near that long before it starts to correct; but I can not see it going back to where it was in dollars, unless the dollar totally collapses.
Interesting that this site had little to say when oil was being pushed above it’s supply/demand curve back during Cheney/bush. Now, they are gone and oil is falling like a rock with huge oversupply….. Personally, I’m betting down around $10 a barrel….. Economics 101 from College days…… The price was $18 before Cheney/bush. With such oversupply it is to be expected that it will bounce back below the original price…..
Unless of course the Sunni/Shiite conflict turns into a full fledged hot war….. :( Since American producers and Israel would benefit from such a conflict, it just might come to be…. Imagine a rocket fired from the direction of Iran or Saudi Arabia landing on the opposing capital…. Would there be a response before the rocket was verified under these highly charged conditions?
the real source of tension is lack of revenues. it’s being directed externally for now. but i’d expect these problems reverse and turn internally at some point, like what happened in libya and egypt. say goodbye to the ayatollahs.
Totally agree with that. When money dries up…..anger is aroused, tensions flare and fighting starts! And so we see it because the oil money is drying up for the Muslims in the M.E.
Looking at a long term chart, WTI should decline a bit more to form a base around $30 or so and then it should rally before further declines to the $10 area. But, with the stock market on the edge of a possible large decline in the next several months…..IT COULD drag oil straight down with it.
the big worry for oil is china. more slowdown in china means more pain for oil.
and why do u think theres oversupply its because bush promoted getting more rigs going… opening up federal lands for drilling Obama had done everything in his power to destroy oil the keystone pipeline would have helped to drop the price of oil and help get it to the pump cheaper but since and I gotta say this SINCE WARREN BUFFET WENT TO THE WHITE HOUSE NUMEROUS TIMES OVER AND OVER VISITING WITH OBAMA IT SEEMS THE KEYSTONE PIPELINE COULD NEVER GET HIS APPROVAL it had the approval of the senate the congress even the epa and every other regulatory agency overseeing it but …… NOPE OBAMA WOULDNT OK IT CANADA IS IN A SEVERE RECESSION BECAUSE OF ITS NOT BE APPROVED BY Obama and now instead all that oil is moved by rail guess who owns the rail line that all that oil is being transported on …………. cmon take a guess you kinda guessed it
its WARREN BUFFET
You seriously really need to do a study of International Economics before you continue to comment here as you seem to not have the slightest idea of what you are talking about!…. :(
I have also heard that Warren had an interest in not having the pipeline installed. Are you saying that is not true? Warren has no interest in the outcome of the pipe line?
Buffett sold his oil holdings for the canabus prohibition, and nuclear power plants, uranium mining companys, lithium mining, gigawatpower plants for naighborhoodpower supply. Do to the europe summit with other word leaders
To stop carbonmonoxide and reverse the worlds selcius temps 2 degrees buy 2050.oil will be obsolete.
no doubt about it! obama helped his buddy, warren buffett, (after a visit to the white house), by NOT passing the keystone pipeline bill. i wonder how much money was in that briefcase? buffett’s railroad has benefited enormously. politics as usual.
you can see the supply/demand chart here:
eia.gov/forecasts/steo/report/global_oil.cfm
balance will be restored in q2. february could be the bottom. in march the driving season will begin and demand will be back.
Dead on Hawk, and yet Obama expects CN to help against ISIS instead of teaming up with a reliable friend to cut imports from those that are supporting ISIS , he turns around and F#@& those that support him, hence financial stability for ISIS and DEPRESSION for an old reliable friend just MAZING
Look something is fundamentally wrong about his Delays and decision, JUST SHOW OFF before the Paris meet I have faith but must wait for a change in administration
The last time oil was down back to back years was 1997 1998 about 30% and it doubled the next year. Its time to party like its 1999? The market is not in a panic sell off. Mostly a political masquerade by supply. The ever increasing population is an increase in consumption. Its spelled out clearly in article. I was super tempted to sign in for that cycle trader. In fact it seemed like I was getting an email every two hours for a couple of months. I especially enjoyed last nights headline mostly because it is over, thank the lord. Kiss your $6300 gift goodbye. How industrious. I was close to pulling the trigger until the extended three year offer. I dont plan on being in the market quite so long. If there was more of a half an hour plan. I believe that would best suit me as a long. It shouldnt take but a minute to be advised on a few equities ripe for the year. Of course if youre not so well prepared it could take sometime to run down a winner as I wouldnt expect just anything thrown out there. Nevertheless comprising an email or placing a phone call wouldnt take much time to relay a few choice stock symbols but those choices being quality that could take a bit of research. I havent the patience I insist on getting what I pay for. Call it bad habit or
genes or something. War cycles and the middle east? Sounds interesting. I cant think of how peace over there effects domestic stock. But then again someone to hold my hand? Five years?Oh well…maybe another time.
…maybe another time.
Too bad you did not write about the need for real/true tax reform. The federal tax code is a puzzle so big and complicated that it can not be solved. It was created by lobbyists, special interests and politicians and it is serving their interests. This puzzle is supposed to fund our government but creates many problems like tax evasion, tax inversion, fewer jobs and discouraging work and creativity. We need a new puzzle to fund our government with just two pieces, a progressive national sales/consumption tax and one tax break, called the Prebate that helps most the impoverished and lower income. Learn more, join the cause and contribute at fairtax.org.
I always felt if you continually grew debt, growth would be unstainanble!
Jon, thanks for the interesting articles on oil and on population growth and aging. So how does today’s median age of 37.8 years that you mention fit in with the cycles that Larry and Harry Dent carry on about?
I do not buy GREEN bananas anymore ..got it ??
when china’s economy falls. then Chinese markets fall. then their demand for oil is less. then all world markets fall accordingly with china. GO TRUMP