Even as markets shook, many investors held steady
Even as markets shook, many investors held steady
Even as stock markets tumbled around the world, putting a halt to an unusually calm and strong ride upward, many investors resisted the urge to sell in a panic and lock in the losses. Others plugged even more cash into their trading accounts after seeing prices for S&P 500 index funds drop by 10 percent within a couple of weeks.
At Fidelity’s retail brokerage, for example, customers continued to put in more buy orders than sell orders after the S&P 500 began falling from its peak set on Jan. 26. Younger investors led the charge into stocks.
“Millennials and Gen Xers are definitely taking advantage of these prices and taking advantage of the sell-off,” said Scott Ignall, senior vice president and head of online brokerage technology at Fidelity.
Experts typically recommend that investors stay the course when stocks go through a bout of volatility. Stock prices can suddenly bounce up and down, as they did this month when the S&P 500 followed up its worst week in two-plus years with its best week in five years. But stocks aren’t supposed to be short-term holdings, and they’ve historically delivered better returns than other investments when held for the long term, such as a decade.
Beyond that, many voices along Wall Street were encouraging investors to “buy this dip.” Worries about higher inflation and interest rates sparked the sell-off, but many analysts said they expected corporate earnings and the global economy to stay strong, which should help stock prices recover.
The buying likely played a role in what’s been a quick rebound for stocks. As of Friday’s close on Wall Street, the index had roughly halved its loss and is down only 4.9 percent from the record.
Consider what millennials customers were doing in their Fidelity brokerage accounts from Jan. 26 through Feb. 12, when the S&P 500 lost nearly 8 percent. Of every $100 in new dollars and money getting reallocated, $87 went into stocks or stock funds. That indicates an even stronger appetite for stocks than millennials had shown in the placid, record-setting year before the sell-off, when $75 of every $100 went to stocks.
Generation X investors showed an even more pronounced preference for stocks during the downturn, with stocks making up $86 of every $100 in new and reallocated dollars. That’s up from $67 in the prior year.
Older investors were also buying stocks, but at a lower rate than their younger counterparts, and at a lower rate than they had been buying at during the year before the downturn. Baby boomers instead put much more money into money markets and cash.
“Every investor is different, with different goals and risk tolerance, so it’s hard to say whether their activity is right or wrong,” Ignall said. But “having a plan, sticking to it and being able to adapt to that plan is the most important thing for our clients, and I’m glad they’re able to do that through these market conditions.”
Fidelity’s figures marry with data from others around the industry. Vanguard, for example, looked at how much trading individual investors and 401(k) participants were doing during the tumultuous run from Feb. 2 through Feb. 9. Ninety seven percent did nothing, with nary a trade.
At TD Ameritrade, younger investors also led the way in buying as markets tumbled. Through the first week or so of February, millennials deposited 1.5 times more into their accounts than Generation X and five times more than baby boomers, said JJ Kinahan, chief market strategist at TD Ameritrade.
All this comes with the caveat that many market watchers along Wall Street are warning of continued volatility. After their unusually calm 2017, markets are bound to be jumpier given that the Federal Reserve is raising interest rates and slowly winding down the stimulus it put in place after the Great Recession.
Put another way: This sell-off may have been the first test for investors in a while, but more are coming.
Saudi Arabia seeks stable, not soaring, oil prices
- Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday.
- The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98
RIYADH: Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. Bloomberg reported that increasing prices were due to Saudi Arabia’s comfort with Brent crude above $80 per barrel. Such “analysis” is hogwash.
Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday. WTI rose above $70 per barrel for the first time in three months and settled at $70.78 per barrel by the week closing.
The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98. As may be noted in those numbers, the Brent crude price has been resisting the psychological barrier of $80 per barrel. The fact is that, since October 2014, the Brent monthly average has never gone above $80.
The oil price outlook might be raised as a result of this upward tendency and the continuing tight oil market. For instance, with the latest numbers in hand, HSBC has revised its oil price forecast upward with Brent to average $80 per barrel in 2019 and $85 in 2020, before settling at about $75 in 2021.
Bloomberg was inaccurate about Saudi Arabia’s comfort with a Brent price above $80 per barrel. The Kingdom has never been among the bulls when it comes to oil prices. Again and again, Saudi Arabia has been a major advocate for stable oil prices, not increasing oil prices, which it views as unsustainable and damaging to the global economy. Bloomberg is also predicting that Saudi Arabia will follow its allegedly bullish nature and refrain from ramping up production to compensate for the oil lost once the US sanctions on Iran come into effect.
US Secretary of Energy Rick Perry has confirmed that Saudi Arabia, Russia and the US are well able to add enough crude oil supply into the market to compensate for Iran. Indeed, the Kingdom has begun to increase output to adjust for market needs, from 9.87 million barrels per day (bpd) in April to 10.42 million bpd in August.
The upward movement in oil prices came after strong fundamentals showed market tightness that spurred record levels of speculative traders, with nearly all betting on higher prices. The price rise also recognized that total US inventories are below the five-year average for the first time since May 2014. Oil prices have been gradually trending upward with gentle fluctuations. There have not been any steep surges or declines. There is nothing artificial about the trend. In reality, it is boringly predictable.
Last month, the International Energy Agency (IEA) reported OECD commercial crude oil inventories at 32 million barrels below the five-year average. Stocks at the end of Q2 2018 were up 6.6 million barrels versus the end of 1Q 2018, the first quarterly increase since 1Q 2017. The IEA also noted that global refinery throughputs in the second half of 2018 are expected to be 2 million barrels higher than in the first half of the year. These refined products stocks will draw down before building again in 4Q 2018.
Global crude oil inventories peaked in 2016. The OPEC+ agreement that worked for market balance was the reason for a fall in inventories. Since May 2017, global oil stocks have been on the decline and now global crude oil stocks are below the five-year average. Product stocks are also below that level, with strong demand and healthy refining margins.
Inventories have kept falling despite American producers pumping at all-time highs last month. It is only the massive flood of oil from the US which has kept crude oil prices at low levels from early 2015 to the end of 2017 — along with a resulting lack of upstream investment in the oil industry. Therefore, the IEA predicts that in 2022 spare production capacity will fall to a 14-year low.
Global oil markets are rebalancing. Oil prices started their upward momentum from the end of October 2017. They went above the psychological barrier $60 a barrel after 10 consecutive months of tireless efforts by OPEC and non-OPEC nations that started on January 2017. The market rebalancing will continue through the end of 2018, and beyond.
Such upward momentum in oil prices isn’t artificial movement because it came after many months without steep price fluctuations. In 2016, the Brent price average was $43. The 2017 Brent price average was $54, and prices just surpassed $60 in October 2017. The Brent average surpassed $70 in late March 2018 and has been hovering between $72 and $78 since. There is no evidence of a steep fluctuation or an artificial movement.
The claims of an artificial price movement have come just at the time when OPEC and the world are reaping the positive outcomes of 24 nations collaborating in output cuts that managed to successfully rebalance the oil market in a situation where global oil inventories were running at record highs. Also, these false claims came when the oil industry needs capital inflows to reactivate upstream investments for major international oil companies. Such investments are essential for the price stability that benefits oil producers and consumers globally. Low oil prices result in low investment in discovery and production of petroleum resources, which damages various industry sectors and energy needs. That leads to a vicious cycle of up-and-down price fluctuations.