Oil prices have risen, but here’s why a fund manager warns that they’re gone too far

So it is noteworthy that a fund whose job is to invest in the sector does not believe in the oil price boom. “We’ve seen this story before,” said Shinwoo Kim, portfolio manager for T. Rowe Price’s New Era Fund PRNEX,
-0.70%,
and the similarly designed Global Natural Resources Equity Fund outside the United States “Prices of crude oil and other commodities tend to exceed on the downside to deter production when there is a negative demand shock and then return, temporarily, to artificially high levels. , as demand recovers to stimulate a supply response and rebalance the market, ”he added.

Will the capital discipline of American slate players and the disinvestment pressure from the environmental, social and government movement not limit production and therefore maintain higher prices? Debt issuance and credit spreads, he said, indicate that high-yield energy companies continue to have access to capital markets. Furthermore, the number of rigs has increased at the same pace from the bottom as in 2016 and 2017.

There is also potential, he added, for productivity gains to push the cost curve for oil. Rig productivity in the Perm basin should eventually catch up with that in the Bakken region.

His pessimism on oil also extends to metals and mining, as the oil cost curve has an impact on the cost curve for many other commodities.

That said, three of the fund’s top four holdings at the end of the year were in the oil area: TotalEnergies TTE,
+0.85%,
ConocoPhillips COP,
-0.70%
and Chevron CVX,
+0.26%.
Sherwin-Williams SHW,
+0.10%
is the fund’s number three asset. “The set-up in companies that focus on paints and other coating products sees us as potentially attractive. “Historically, the best companies have been able to protect profits by passing on rising input costs to customers and then retaining some of those price increases when oil prices eventually fall,” Kim said.

The diagram

Are rising interest rates so bad for stocks? Historically, not so much, at least according to this chart from Callie Cox, investment analyst for eToro, who said the average 12-month return on the S&P 500 SPX,
+0.04%
of 9% after increases in bond yields. “Stocks tend to like higher dividends, they just take a while to digest,” she said. Not pictured, but Nasdaq-100 NDX,
-0.02%
historically, she has also seen strong 12-month returns of 16% after interest rate hikes, she noted.

Tweeted

When she talked about her book shortly after noon. 05.00 Eastern, star fund manager Cathie Wood said the valuations of technology companies are better in private markets. Her flagship fund, ARK Innovation ETF ARKK,
-0.22%,
has fallen 49% from its peak in February.

Sum

Bank of America BAC,
+2.06%
topped earnings estimates, even though revenue lagged above estimates, and Morgan Stanley MS,
+2.36%
also had that combination of earnings beat and revenue losses. Burberry BRBY,
+ 5.95%
rose in London trading after upgrading its operating profit expectation after a 7% jump in comparable store sales.

A leading Tesla TSLA,
-1.77%
shareholder asked the company to issue delivery instructions over the Wall Street estimates.

Housing starts rose 1.4% in December and permits rose 9.1%. Germany and the United Kingdom each reported that consumer prices rose above 5% year-on-year.

The market

US stock futures ES00,
-0.18%

NQ00,
-0.16%
advanced on Wednesday, following the bond yields that sent the Nasdaq Composite COMP
-0.10%
a drop of almost 3% on Tuesday and 7% this year.

The return on the 10-year treasury TMUBMUSD10Y,
1.855%
fell to 1.86 per cent.

Top tickers

Here were the most active tickers on MarketWatch from kl. 06.00 Eastern.

Random readings

New York’s Attorney General said former President Donald Trump’s business has repeatedly misrepresented the value of its assets.

They did not like paper straws 5,500 years ago, either.

Still on the market – a Roman villa with the only known Caravaggio mural was not sold at auction. The price was € 471 million ($ 538 million).

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