This article was published by The McAlvany Intelligence Advisor on Monday, April 13, 2020: 

Ned Davis, the head of Ned Davis Research, can’t explain it: Last week’s monster rally in stocks occurred while breathtaking unemployment numbers were reported. Said Davis: “It defies logic. My explanation is that … the market tends to look ahead.”

In the shortened trading week – the markets were closed on Good Friday – the popular averages all hit double digits: the Dow closed up 12.6 percent; the S&P 500 closed up 12.1 percent; and the tech-heavy Nasdaq closed up 10.6 percent.

This rally ignored the numbers from the Labor Department: 6.6 million people filed for unemployment insurance last week, bringing the total to 17 million claims in just the last three weeks. Some are expecting claims to exceed 25 million before the COVID-19 crisis is over.

Another indicator for a healthy and quick economic rebound is bond yields. As MarketWatchwrote on Friday: “When the Fed helps investment grade bonds [by buying them in massive quantities], it has been a good buy signal for stocks.” For the record, on March 18 the yield on the U.S. 30 year Treasury bond was 1.78 percent. On Thursday the yield had dropped to 1.35 percent.

That rebound could indeed be faster than many expect. Ed Doherty, chairman and co-CEO of Doherty Enterprises (think Applebee’s, Panera Bread, Chevy’s Fresh Mex, Quaker Steak & Lube, Spuntino’s, and The Shannon Rose), hopes so: “Americans will probably travel less overseas when this is over and will spend locally, which will help our businesses.”

Tim Hentschel, CEO of hotel booking website HotelPlanner, is forecasting that his company will return to normal by June 1: “We are encouraging people to book their summer travel now, as it is a win-win for the forthcoming months. Flight prices are incredibly low, and airlines are allowing cancellations at any time.”

Max Gokhman, who decides where the $7.8 billion he manages for Pacific Life is invested, said he expects most workers to be rehired promptly once the crisis is past. He regards most layoffs as temporary, and so, once the shutdown ends, restaurants, hotels, manufacturing, construction, malls, finance, and industry “could come roaring back.”

That’s what makes Pantheon Resources’ announcement so timely. The energy producer updated an evaluation of an old exploration well in the North Slope of Alaska and concluded that the prospect could ultimately produce 500 million barrels of oil, with peak production nearing 90,000 barrels a day. Pantheon’s CEO Jay Cheatham told the Associated Press last Wednesday that, “We are so advantaged because of our location, being able to be right there along the Dalton Highway [aka the “haul road” for rigs serving the oil fields in the North Slope].”

The world is likely to need the additional supply, and soon. Reports over the weekend are that OPEC and Russia have mended their fences and have agreed, with reluctant approval of member Mexico – to cut their production by 10 million barrels a day. This has shored up crude oil prices by $3 a barrel, which, prior to the tentative agreement, looked like they were headed to $10 a barrel or less. The New York Times reported that Russia and Saudi Arabia, the head of the OPEC oil cartel, “have retreated from threats to pump more oil into the already-saturated market.” The Times said that a “complete free-fall of oil prices into the single digits … appears to have been avoided.”

Thanks to the virus shutdown, American oil producers have already cut production, which is likely to decline by two million barrels a day by the end of the year according to the Energy Department. U.S. crude oil producers have already cut thousands of jobs (the industry currently employs, directly or indirectly, some 10 million people), have taken hundreds of wells offline, and have decommissioned rigs and fracking equipment in response to the shutdown.

Once the shutdown ends, the global recovery will need all the low-cost energy it can get in order to return to normal levels.

Timing is everything. Pantheon’s timing could turn out to be just perfect.

The Motley Fool agrees. Its two top picks out of the Toronto Stock Index, which also jumped last week, are TC Energy and Pembina Pipeline.

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Sources:

MarketWatch16 million people just got laid off but U.S. stocks had their best week in 45 years

AP ReportsMassive Oil Deposit of Up to 1.8 Billion Barrels Discovered in Alaska, Company Says

Finance.Yahoo.comOil Negotiators Race Against Clock to Get Oil Supply Deal Done

The New York TimesAs Russia and Saudi Arabia Retreat, U.S. Oil Industry Avoids the Worst

The New York PostBusiness analysts see potential summer recovery for economy

One month chart of yield on 30-year US Treasuries

The New York TimesAs Russia and Saudi Arabia Retreat, U.S. Oil Industry Avoids the Worst

Background on Pacific Life Fund Advisors ($7.8 billion under management)

Ned Davis Research

The Motley FoolTSX Energy Stocks: Today’s Top 2 Picks

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