Inflate in May and Go Away

The Federal Open Market Committee stuck to the script Wednesday afternoon, voting unanimously to keep rates steady.

Then Fed Chair Jerome Powell opened his mouth.

“Traders have been speculating that recent weaker inflation readings would concern the Federal Reserve so much that it would cut interest rates later this year,” CNBC reports.  “Powell knocked that idea, by explaining that the central bank still sees the weakness as the result of ‘transitory’ factors, such as portfolio management services, lower apparel prices and airfares.”

Sometimes investors will use any excuse at all to sell. Yesterday, Powell’s remarks about weaker-than-expected inflation were all it took to start a wave of selling that lasted in the closing bell. Markets wanted Powell & Co. to leave the door open for rate cuts later this year. When investors didn’t hear the magic words, they threw a little temper tantrum that knocked the Dow lower by more than 160 points.

It appears investors are finished pouting about rates early this morning as stocks stage a mild recovery ahead of the opening bell. Thankfully, the market is offering plenty of distractions that could persuade the unwashed masses to cling to their shares as the Sell in May bears growl…

While traders and Fed-watchers continue to squabble over stocks, oil is finally retreating from its highs this morning.

Crude has marched higher virtually uninterrupted since bottoming out near $45 late last year. It’s jumped more than 45% off its lows, with a barrel of light crude topping $65 as recently as last week.

WTIC

“The story’s been largely overlooked among the slew of earnings reports headlines and IPO frenzy,” our own Mike Burnick explains. “Fueling oil’s resurgence include rumors of an imminent crackdown on countries that import oil from Iran. Last week The Washington Post reported U.S. officials will not renew waivers granted to countries still importing Iranian oil. This means countries like China, Turkey and India will have to find their oil elsewhere or face significant sanctions.”

While this news has boosted oil’s price recently, Mike also notes that oil’s bullish trend has been in place since the market bottomed out more than four months ago. And the Iranian oil sanctions aren’t the only thing fueling oil’s run.

We now have a bidding war bidding war was escalating between energy giant Chevron (NYSE: CVX) and Occidental Petroleum (NYSE: OXY) to buy out Anadarko Petroleum (NYSE: APC), the leading producer in the Permian Basin of West Texas, Mike explains.

Even Warren Buffett’s getting in on the action, plunking down a cool $10 billion investment to help Occidental out-battle Chevron for Anadarko, which just so happens to be the largest independent producer in the Permian Basin.

Of course, the drama has been great news for Anadarko shares, which are now up nearly 60% since the beginning of April.

APC

Meanwhile, we’ll keep a close eye on oil’s retreat this week. Crude’s first extended pullback of 2019 could set up some choice trading opportunities if the sector can survive the shakeout.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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