First, Happy Easter Week to you and yours.

Market activity remains relatively subdued this week as we suspected it might be. The Easter Week and Spring Break Holiday sessions are typically a bit slower as kids are out of school and vacations take many on the road and away from trade desks.

Clearly, that has not eliminated improving behind the scenes events…many of which are not being placed in the media spotlight. Why? They are good pieces of news. Let’s review.

Overall Landscape

It’s up and down depending on where you focus your attention. The Eurozone is looking better as PMI’s improve. Japan is looking worse as rates get more negative. Brazil is a nightmare as the Olympics approach.

Meanwhile, the US is muddling along as Generation Y slowly but surely takes over the power from the Baby Boom.

The upcoming earnings season is likely to be a bit of a downer as covered below. Let’s call that a short-term opportunity for shopping. We should continue to use that red ink – as and if it arrives – to build for long-term improvement.

Lastly, playing the role of the end of the economic train for now, commodity prices are making an effort to stabilize and in some areas are rebounding a bit, complete with an overflow of different opinions about whether the price of oil is headed to $50 or to $25.

Some details on the US:

The Citigroup Economic Surprise Index has rebounded sharply from a recent low of -55.7 on February 5 to -4.1 yesterday

Three of the five regional business surveys conducted by the Fed districts are available for NY, Philly, and Richmond. March’s average of their composite indexes was positive for the first time in eight months.

Also impressive is that initial unemployment claims averaged just 268,000 over the past four weeks through the week of March 12.

Jobless claims, even in the major oil-producing states, remain subdued, suggesting that job losers in the oil patch are having no problems finding jobs elsewhere.

Another promising development is the V-shaped recovery in the CRB raw industrial’s spot price index. It is up 11.5% since its recent bottom on November 23. Miners have been scrambling to cut their production, and the dollar has dropped 4.5% since making a high this year on January 20.

Peak Hysteria?

As covered in late January here, when the hysteria over “plunging oil prices” and a “rocketing dollar” were at a premium, things have changed a bit since. The recent rebound in the dollar and in commodity prices should boost S&P 500 earnings per share (as compiled by Thomson Reuters).

However, y/y comparisons, which turned negative during Q3-2015 with a decline of 0.2% and followed by a 3.1% drop during Q4-2015, are expected to decrease 7.1% this quarter and 1.7% next quarter by industry analysts.

This is inline with the notes sent last week which suggested that market angst and chop could remain in place until we make a full round trip of the energy sector collapse. Recall that if we can look beyond the energy blend of the quarterly earnings parade, the rest of the market still has an increased earnings target YOY, pausing a bit on pace of increase but ahead nonetheless.

Important Likely Overlooked Insight

Indeed, the price of a barrel of Brent crude oil is up 50% since January 20. While that will aid in the search for a “recovery” in earnings, it is important to note the collapse had led to a major shift in its ability to impact:

Dr. Ed reminds us that the sector itself has become very tiny in relation to the whole with “its earnings share of the S&P 500 down to 2.3% from 8.1% at the start of 2014 and its market-cap share down to 6.9% from 8.5% over the same period.”

In the larger picture, while we still stand by our long stated forecast of a new trade range for oil between $30 and $80, Dr. Ed also highlights that “all the ‘experts’ who didn’t see how much the price of oil would plunge are now debating whether it might move above $50 to even $80 or retest the recent lows around $25.”

Major Issue(s) of Interest Ahead For Oil

As much as all of those same experts assumed the price collapse would lead to reduced production, data suggest that too has failed to materialize in earnest just yet.

The much watched demand/supply ratio, which turned bearish in early 2014, remains bearish, with February’s reading the lowest since February 1999.

Just as important for the long-term, the pace of increase for global oil demand growth seems to be slowing now, but remains in record-high territory.

As a counter to same, experts have been foiled again as oil production levels in the US plus Canada rose to a new record high in February.

The net effect? Positive foundations for consumers and summer vacations ahead as well as users of crude the world over as costs should remain far lower than historical norms.

In Summary

Quiet week so far as expected. If you are off with Family on Spring Break, we wish you and yours a blessed Easter Weekend.

Just keep in mind that when volume is lower one can witness bouts of choppy trade. I close with one thought to remain aware of: While the news is slowly ebbing toward the good side of the scale after a lot of ups and downs to start the year, don’t be surprised if the news spins it all badly.

As stated in recent notes:

Forget economics for a moment and think demographics.

If we can patiently do so, and use periods of setback to our advantage for the long-term, we will find we are in great shape.

Happy Easter to You and Yours.