Market News 8/04

Markets

It seems like the stock market showed resilience despite an increase in bond yields, which usually has a negative impact on equities. Bond yields represent the return on investment for fixed-income securities, and when they rise, investors may shift their focus away from riskier assets like stocks. However, the fact that stocks remained steady suggests that other factors or market conditions might have counterbalanced the impact of higher bond yields.

As for oil prices, they continued to rise, indicating a sustained upward trend in the cost of crude oil. This can have several implications, particularly for consumers at the gas pump, as higher oil prices often lead to increased gasoline prices. The reasons for the oil price increase would require further analysis, but some common factors include supply disruptions, geopolitical tensions, changes in demand, or production adjustments by major oil-producing countries.

To understand the reasons behind the oil price increase, it might be worth delving deeper into the current market dynamics, global events affecting oil-producing nations, and trends in energy consumption. These factors can give a clearer picture of why oil prices are on the rise and how they might impact various industries and everyday consumers.

Stocks Have Had a Great Year. Cue the September Effect

September has historically been the weakest month for U.S. stocks, and this year, investors are particularly concerned as they witness a significant rally following last year's sell-off, defying various risks. The S&P 500 has shown an impressive 17% increase year-to-date, including a 3.1% rise in July with gains across all sectors. Moreover, the Cboe Volatility Index, known as Wall Street's "fear gauge," is currently below historical averages.

Looking at average monthly S&P 500 returns since 1928, September stands out as the worst performing month. Dating back to 1928, the S&P 500 has experienced an average loss of 1.1% during September. This poor performance is not just limited to a few bad years; the index has risen less than 45% of the time during September, making it the worst month in terms of frequency of positive returns over that entire period, as reported by Dow Jones Market Data. With these historical trends in mind, investors are bracing for a test of their optimism in the upcoming month.

Politics

Trump arranged for the third time

The ex-president made an appearance in a Washington, DC, courtroom, facing charges related to allegations of attempting to undermine American democracy and overturn the 2020 election results by spreading false information. Like his response to two previous indictments, Trump entered a plea of not guilty. The next significant date for this case is August 28, scheduled for a hearing, just five days after the initial Republican presidential debate (there is a possibility that Trump might not attend either event). During the hearing, the judge is expected to determine a trial date.

Energy

Why is gas getting more expensive?

Start preparing for an onslaught of gas-pump pics on social media with the caption, “Thanks, Biden!” The national average of gas rose to a nine-month high of $3.82 per gallon yesterday, up 11 cents from a week ago, per AAA.

So, what’s driving prices higher? A noxious mix of heat and geopolitics.

The heat: It was so hot in July that refineries in the Gulf of Mexico, which aren’t designed for temps over 95 degrees, are struggling to produce gasoline. That, paired with increased demand for fuel over the summer (so many late-night drives blaring Charli XCX’s “Speed Drive”), means gasoline inventories in the country have fallen to their lowest July level since 2015.

The geopolitics: Major oil producer Saudi Arabia said yesterday it would extend its output cuts into September and could even deepen those cuts after that, according to state media. By curbing supply, Saudi Arabia hopes to prop up the price of oil—which gives it critical revenue to spend on futuristic cities and Ronaldo’s teammates. But the cuts are angering the White House because they could lead to an uptick in US inflation.

Looking ahead...the rise in gas prices may not last. Refinery operations are returning to normal, and demand usually tapers off in August, according to an AAA spokesperson. But a worse-than-average hurricane season could present unforeseen challenges.

Economy

Jobs Report Day

Greetings to everyone celebrating Jobs Report Day. At 8:30am ET, the government will release the employment situation data for July, which is anticipated to indicate a slight easing in the labor market, while remaining robust. Economists will closely monitor wage growth for clues about the potential direction of inflation. If workers receive substantial salary increases, it could lead to upward inflationary pressures.

CEOs, during their Q2 earnings calls, expressed optimism, with the phrase "soft landing" being mentioned 97% more frequently this cycle compared to the last one. While some CEOs, like PNC's Bill Demchak, feel confident in the concept of a soft landing, others, like Tesla's Elon Musk, remain uncertain.

Despite these positive outlooks, not everyone shares the same sentiment. The recent downgrade of the US' credit rating by rating agency Fitch, amid political polarization, has raised some concerns. Historically, economists have made high-profile soft landing predictions before recessions in 1990, 2000, and 2008. Therefore, while optimism is prevalent, caution remains warranted.