The Santa Claus rally in U.S. equities continued last week with new highs in many markets. Based on the strength of the move, we expect it to continue for the remainder of the year. The U.S. economy is strong, and falling oil prices have boosted expectation for consumer spending.
The question I have been asked the most: Would you be a buyer or seller of energy company stocks and bonds?
I expect oil company stock and bond prices to trade higher in early 2015, as they have significantly underperformed the overall market. This bounce could be an attractive trade, but, for long-term investors, this bounce may not be long-lived. We will look for any increase in stock and bond price to reduce positions in weaker-quality companies or to swap our holdings into companies with better long-term-profit prospects. Understanding the balance sheet of the weaker oil companies will be key to determining how long some of these companies can remain solvent with oil prices below $60 a barrel.
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