Here are some talking points.
- A lot of the unwinding that I mentioned last week has occurred in both the price of oil and treasury yields. There may be more to come but the important thing is we understand more now than we did last week about Katrina and so some portion of the panic has unwound.
- Assuming no external shock, like Ophelia being worse than Katrina, the path of least resistance for US equities seems to be up. I think this is more short term, like a couple of months, than long term. 2006 looks like it might be rough.
- It seems like the Fed will pause but NOT in September. I have been concerned about whether the Fed will go too far as it often does and we could know that answer in January or February.
- Despite the selloff in oil prices, oil stocks are still a good place to be overweight. An average price for the 3rd quarter anywhere close to $60 will be very positive for oil company earnings.
- I also continue to want to stick with utilities in an overweight position. An element of high yielding, relative safety makes sense as the market still punishes riskier companies that disappoint.