Nasdaq Assumes Command As Big Four Come Through While Energy Gets Pummeled

"Energy forecasting is easy. It's getting it right that's difficult" - Graham Stein, 1996

The great thing about numbers is they tell a clear picture without any words. Consider these figures - year to date, the Nasdaq composite is up 24.87%, the S&P 500 is ahead by 1.25%, and the Dow Jones Industrial Average has lost 7.39% (all figures come from the August 1 edition of the Wall Street Journal).

A third grader looking at these results would understand where most market capital is flowing. It’s all tech, all the time. On Thursday, market darlings Apple, Amazon, Facebook, and Google reported their quarterly results for the period ending June 30. Three of the four smashed estimates, while Google came up just a touch short. The first three showed top line growth, and in the case of Amazon, it came in at a whopping 40%. Amazon’s revenue number surpassed eighty billion dollars, meaning it is probably on track to exceed three hundred billion dollars for the year. Facebook only grew revenues eleven percent, while Apple posted the same growth rate, too (11%).

For equity market investors, their results paint a clear picture of why investors favor those companies. They are large, dominant in their industries, grow their revenues, and generate enormous amounts of cash. An investor doesn’t have any financial risk because they all have billions of dollars of cash on the balance sheet. Investors know a good thing when they see it and have been buying these stocks for quite a long time. Their valuations are through the roof, but as long as they keep growing, capital flows to these names. On the opposite side of the market are the poor chaps in the energy space, specifically big oil.

I know, how could anyone feel sorry for the energy industry. For over one hundred years, citizens have seen the oil industry as bloodsuckers who get a piece of flesh every time a person needs to fill up their tank. There is probably some truth in that characterization, but consider a few important facts when it comes to oil. First, our society and civilization depends on it, and will so for another 20 years minimum, probably closer to 50 years. Second, oil is a difficult substance to find, and ultimately, obtain. It is dangerous to move. It requires the skills of highly educated people. Drilling for it costs a great deal of money, and the probability of finding it is slim, usually less than 1 out of every 5 wells drilled actually strikes black gold. As of right now, over 90% of our transportation relies on some form of oil.

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Disclaimer: Thanks for reading the blog this week and if you have any questions or comments, please email me at information@y-hc.com. Y H & C Investments, Yale Bock, and the family of Yale Bock ...

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