DR.CHENJIAZI ZHONG

Stocks Rise After Jobs Report

Stocks rose Friday following February jobs report, which indicated increased hiring. The S&P 500 Index grew 0.3%, the Dow Jones Industrial Average rose 45 points, and the Nasdaq Composite added 0.4%; the S&P 500 Index recorded its first weekly decline since January 2017. The CBOE Volatility Index (VIX), the most prominent gauge of Wall Street uncertainty, is near its lowest level on record, confounding those who believe uncertainty is only growing.

Petroleum Consumption and Production Growing

The International Energy Agency (IEA) said on Monday that global petroleum consumption will keep growing for the foreseeable future, despite tougher legislation to control vehicle emissions, lending its voice to a debate over when demand for oil might peak. In its annual five-year outlook, the IEA said oil demand from the developing world would keep consumption growing. Supply data from the Energy Information Administration released on Wednesday showed crude-oil stockpiles rising by 8.2 million barrels in the week ended March 3. That dwarfed the increase of 1.7 million barrels the market was expecting. U.S. inventory levels have been on the rise for nine weeks in a row; they hit a record of 528.4 million barrels last week as both imports and U.S. production increased. Moreover, the Organization of the Petroleum Exporting Countries (OPEC) is on an unusual listening tour, in which it exchanges views with hedge funds, investment banks and other big financial players while trying to figure out how the market reacts to its moves.

FOMC Likely to Raise Rates in March

After upbeat speeches from several Fed officials last week, Chairwoman Janet Yellen confirmed that the central bank is likely to raise short-term interest rates and suggested more increases are likely this year if the economy performs as expected. The dollar edged higher Monday as investors continued to grow more confident that the Federal Reserve will raise interest rates this month. The WSJ Dollar Index rose 0.2% to 91.67; the dollar fell against the Japanese yen but rose against the euro and British pound. Higher short-term interest rates typically boost the value of the dollar by making U.S. assets more attractive to yield-seeking investors.

Central banks around the world are increasing foreign-currency reserves, highlighting the fragile underpinnings of the global economic recovery despite a bullish mood in financial markets. In emerging economies, reserve levels have stabilized after two years of big declines. Two-thirds of the 30 biggest emerging markets increased reserves last year. Foreign-currency holdings in Israel, Vietnam and the Czech Republic recently reached new records. China’s foreign reserves rose by $6.9 billion in February compared with the previous month, rebounding for the first time in eight months and pushing the reserve total back above the $3 trillion mark.

A Few Thoughts

All investing is a form of value investing and other styles are forms of speculation. Take value investing through a contrarian approach for example, it is not about blindly taking the other side of consensus, but identifying uncertainty and embracing it. Investors should be cautious on ideas where there is a strong consensus around a singular narrative, e.g., strong dollar. There are opportunities for contrarian investing in retail today.

The VIX is near its lowest level on record, confounding those who believe uncertainty is only growing. A decline in volatility around important political votes may create opportunities for money managers willing to take on risk. It took markets four days to recover from Brexit, around four hours to recover from Donald Trump’s election victory and some four minutes to spring back from the Italian referendum. Over the past year, every new bout of political-inspired drama in the markets has corrected more swiftly than the last. It may be that fund managers have decided to hold back more cash ahead of these events, waiting to see how they pan out.