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Apr 2019 Market Recap: Will Gas and Oil Prices Continue to Rise?

If you drive, you’ve probably noticed the cost of a fill-up has been taking a bigger bite out of your wallet in recent months. The national average for a gallon of gasoline has jumped more than 20% over the past two months, from $2.40 at the end of February to $2.93 on April 30.

Image 1

That increase mirrors a steady rise in oil prices this year. After declining by nearly 40% in the fourth quarter of 2018, oil prices have surged by about 41% this year.

The plunge in prices last year was triggered, in part, by concerns over slowing global economic growth, while this year’s price increase has come as demand for oil has picked up – especially in China and North America. Geopolitics has also played a role. OPEC’s decision to limit production has kept inventories in check, while sanctions against Iran, fighting in Libya, and the collapse of oil production in strife-torn Venezuela have also curtailed global oil production.

Will oil prices – and your price at the pump – continue to climb?

That depends. Coming off a major slump, the rise in oil prices this year was not unexpected, but further increases, if any, would likely be more modest.

The price of oil, like all commodities, is driven primarily by the intersection of supply and demand. But as prices rise – and oil becomes more profitable – U.S. producers have typically ramped up production to cash in on the higher prices. Increased production would help meet the rising demand and, in turn, help keep prices in check. That’s one reason that the current price range appears to be reasonable from a long-term perspective.

Exhibit 1

In the near term, however, there’s one more factor to consider: oil consumption always rises in the summer. And while that doesn’t always lead to higher prices, over four of the past five years, gasoline prices have hit their peak during the summer. So, don’t be surprised if it happens again this year (See Exhibit 1).

Here are some other recent economic highlights, many of which are covered in greater detail later in this report (Exhibit 2):

  • GDP growth hits 3.2%. Gross Domestic Product (GDP) growth for the first quarter of 2019 was estimated at 3.2% (annualized) – a solid improvement over the 2.2% GDP growth rate in the fourth quarter of 2018, according to the U.S. Department of Commerce report issued April 26. The primary drivers behind the growth included increases in personal consumption expenditures, private inventory investment, exports, and state and local government spending
  • Stocks set new high. The S&P 500 Index reached a new all-time high in April, as the stock market continued a strong positive trend.
  • Consumer spending surges. Consumer spending jumped 0.9% in March, the largest monthly gain since 2009, according to the Department of Commerce. The March total followed lackluster gains of 0.1% in February and 0.3% in January.
  • Personal income inches up. Personal income ticked up 0.1% in March, according to the Department of Commerce, while disposable personal income was flat – roughly the same as the previous month.Exhibit 2
  • Retail sales rise. Retail sales for March were up 1.6% from the previous month and up 3.6% from a year earlier, according to the Department of Commerce.
  • Job gains continue. The economy added nearly 200,000 new jobs in March, marking the 102nd straight month of job gains.
  • Bond yields rebound. Yields on 10-year U.S. Treasuries rebounded in April after a steep drop in March, ending April at 2.50%.

Drilling Down

U.S. Stocks Stay Positive

Exhibit 3

The S&P 500 moved up 3.93% in April, from 2,834.40 at the March close to 2,945.83 at the end of April (Exhibit 3). The index has gone up all four months of 2019 – with a total gain of 17.51%. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large-capitalization stocks.)

The total return of the S&P 500 (including dividends) was 4.05% in April and 18.25% for the year.

The NASDAQ Index was also up for the fourth consecutive month, from 7,729.32 at the March close to 8,095.39 at the end of April – a gain of 4.74%. For the year, the NASDAQ is up 22.01%. (The NASDAQ Index – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Strong Rise in Retail Sales

Retail sales for March were up 1.6% from the previous month and up 3.6% from a year earlier, according to a Department of Commerce report issued April 18.

Motor vehicle sales were up 3.8% from a year earlier, building materials were up 3.3%, non-store retailers (primarily online) were up 11.6%, and food and drinking places were up 4.3%, while electronics and appliance stores were down 2.7% from a year earlier.

Job Gains Continue

U.S. employers added 196,000 new jobs in March, recovering from a slow February when only 33,000 jobs were added, according to the U.S. Bureau of Labor Statistics Employment SituationExhibit 4 Report issued April 5.

The unemployment rate remained at 3.8% in March, and the number of unemployed persons was essentially unchanged at 6.2 million. Average hourly earnings inched up by $0.04 to $27.70. Over the past 12 months, average hourly earnings have increased by 3.2%.

Most Sectors Move Up

Most sectors of the S&P 500 posted gains in April, with Financials, Communication Services and Information Technology leading the way. Only two sectors moved lower – Health Care and Real Estate.

Exhibit 5

Exhibit 4 shows the results of the 11 sectors for the past month and all of 2019.

Treasury Yields Advance

The yield on 10-year U.S. Treasuries reversed a recent downtrend in April, moving up from 2.42% at the end of March to 2.50% at the April close (Exhibit 5). It is still well below the 2.68% yield at the end of 2018.

Exhibit 6

Oil Prices Keep Climbing

Oil continued to move up in April, extending its rally for the fourth straight month (Exhibit 6). The price of a barrel of West Texas Intermediate rose from $60.14 at the end of March to $63.91 at the April close. For the year, oil prices are up 40.74%.

International Equities Moving Up

Exhibit 7

The international markets have continued to move up. The MSCI EAFE Index was up 2.46% in April, from 1875.43 at the end of March to 1921.49 at the April close (Exhibit 7). It is up 11.72% for the year. (The MSCI EAFE Index tracks developed-economy stocks in Europe, Asia and Australia.)

What’s ahead for the economy and the markets? See May 2019 Market Outlook: What’s Behind the Rebound in the International Market? by Mark Simenstad, CFA, Chief Investment Strategist

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