What’s Fueling the Rally?

I just came across AAA’s latest gasoline price data.  From their May 2 Fuel Gauge Report:

The average price at the pump for the month of April was $2.10 per gallon, which is the lowest average for this month since 2009. Only 20 percent of U.S. stations are still selling gas for less than $2 per gallon and pump prices are moving due to growth in fuel demand, which is up 5.6 percent versus a year ago, according to the latest data from the U.S. EIA. Gas prices have increased by 52 cents per gallon after hitting a 2016 low in mid-February.

AAA Gas PriceThe data tells us that the average American is paying 30.6% more for regular unleaded than they did on Feb 11 (from the looks of the graph, it’ll go higher still this summer.) But, it doesn’t tell us “why.”

For that, we have to look at a chart for crude light (CL), and its not so coincidental relationship with the S&P 500.  Even those who think charts are nonsense would have a hard time explaining this one away — especially given that most of the gains since Feb 11 came amidst horrid fundamental supply/demand data.

2016-05-03 CL v SPX daily 1028As we’ve been writing about for at least the last six months, CL has become the single most powerful driver of algorithms that determine day-to-day and even moment-to-moment stock prices.  I most recently touched on the relationship here: How to Engineer a Rally

When CL plunged through long term support last December (the yellow arrow), stocks plunged right along with it — making new lows not seen since 2014.

But, on Feb 11, CL bottomed out right on schedule.  At that point, it became the principle force behind a 200-pt SPX rally — though there have been some “unfortunate” side effects.

If you don’t bother checking the price when you fill up your 13 mpg Escalade, you’ll never notice.  But, for those getting 13 mpg in their 1987 Caprice, you’d better believe the extra $50-75/month bites.

At least they’ll take comfort in the fact that they’re supporting the stock portfolios of the one-percenters whose houses they clean, lawns they mow and kids they babysit.




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