Markets Take A Breather, Oil Prices Head Higher

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.

(Wednesday Market Open) Stock indexes fell in pre-market trading as the prospect of peace in Ukraine anytime soon looked doubtful coupled with climbing oil prices as the Kremlin prepared to push countries to pay for the commodity in rubles.

Futures for WTI crude and Brent crude were pushing toward 3% gains while the three major indexes were looking at flat to moderately lower opens. Even still, all three are on track to end March in positive territory, bouncing back from a mid-month about-face.

Inflation continues to press investors after the 2-year and 10-year quick inversion Tuesday, fueling recession fears that could take as long as two years to materialize. If there’s a silver lining, it might be that both the front end and the back end of the curve, the 2-year and 10-year respectively, are both moving higher. That typically means growth concerns aren’t getting hit. At least not yet.

Potential Market Movers

Crude prices have surged since the onset of the war last month, and—despite a slight retrenchment earlier this week—they’re back in an upward trend. WTI was over $107 per barrel ahead of the open.

Much of push came after Germany set off early-warning alarms for a potential pullback of Russian oil as the Kremlin prepares to demand fuel be paid for in rubles. Russian President Vladimir Putin is expected to tell European energy companies this week how to pay for the fuel, which accounts for more than 50% of Germany’s natural gas. They pay for oil in euros now.

European gas prices shot up 15% after Germany’s announcement, which triggers a three-phase plan to monitor possible energy shortages. “There is currently no shortage of supply, but we must increase preparedness and brace for the case of escalation by Russia,” Robert Habeck, Germany’s economy minister, said at a press conference.

“This is about monitoring the situation,” he said. “There are two more steps, the alarm and the emergency phase, but we are not there yet.” The emergency phase would include rations.

The edict follows up on last week’s notice from Putin, who is trying to bolster the value of the ruble, which has tumbled to pennies on the dollar since Russia invaded Ukraine.

Reviewing the Market Minutes

Stocks jumped and oil prices flirted with lower levels, and the 2-year and 10-year Treasury yields inverted for what seemed like a quick second for the first time since 2019, flashing a bearish signal that a recession could be ahead. Markets were buoyed by peace talks between Russia and Ukraine, the first in more than two weeks.

The rally was broad based, lifting the S&P 500 (SP) for a fourth-straight day and juicing the Nasdaq (COMP) by more than 1.5%. Apple (AAPL) was a major advancer on the index, clocking its 11th day of gains for the longest upward streak since 2003 and coming close to retracing all of this year’s losses. The Dow Jones Industrials ($DJI) finished the session nearly 1% higher. Tuesday’s gains helped the Dow’s and the S&P’s ups and downs almost flatten for the year as well.

Nielson Holdings shares surged better than 20% after news surfaced that a consortium led by Elliott Management and Brookfield Asset Management (BAM) were in talks to scoop up the TV ratings firm for $16 billion, or about $28 per share.

Also moving higher amid acquisition activity were shares of LHC Group (LHCG) after UnitedHealth (UNH) said it will take another step in providing home-based health care by purchasing the business for $5.4 billion in cash. Shares ended the session higher by nearly 6%.

In after-hours trading, Lululemon (LULU) zipped ahead by 7% after the athleisure apparel maker turned in robust earnings despite missing revenues expectations. Micron (MU) shares also bounced 4% after the chip maker outpaced Wall Street’s forecast on both earnings and revenues and offered strong third-quarter guidance.

Three Things to Watch

RECESSION OR NOT? Briefly, investors saw interest rates on 2-year U.S. Treasury notes tap ahead of those on the 10-year benchmark, a relatively rare phenomenon known as a yield curve inversion. Typically, that has signaled a recession is in the future. But when, and even if, it might happen is still a crapshoot.

Why? In usual circumstances, when government bonds with longer terms fall below those with shorter terms, bond investors expect short-term rates to weaken as inflation rises. But, as many market commentators were quick to point out Tuesday, these conditions are far different than any other the markets have ever experienced: Inflation surges while the first ground war in Europe is taking place since World War II, and oil prices rise as joblessness in the United States tightens.

Though recessions happen after inversions more often than they don’t, it can take anywhere from six months to two years for it to materialize. And remember this: Past performance is no guarantee of future results.

“SAFE” LANDING vs. “SOFT” LANDING: Patrick Harker, president of the Federal Reserve Bank of Philadelphia, was on the road Tuesday spreading the word about a “safe” landing for the economy as the Fed Reserve raises rates aimed at slowing down rampant inflation.

That’s a new play on the Fed’s typical “soft” landing approach, which could be a tough row to hoe as inflation shoots up 8%. Like other Fed members, Harker sees interest rate hikes totaling at least seven this year but said he expects a “series of deliberate, methodical hikes as the year continues and the data evolve,” according to published reports.

Investors widely expect May’s lift will be .50 basis points and following escalations could shift between the usual .25 basis points and .50 basis points. Harker’s not committing to that, but he’s not taking if off the table either.

“We don’t want to overdo and pump the brakes hard,” he said on CNBC, noting the ride will be “bumpy.” It’s not a “soft landing; it’s a turbulent but safe landing.”

“I think we can pull this off,” he added. “We’ve got such a strong position going in.”

WHERE ARE THE WORKERS? The struggle continues for employers to find good help when there’s 1.8 open positions for every unemployed worker. The Labor Department’s Job Openings and Labor Turnover Surveys, commonly known as JOLTS, was little changed from February’s 11.3 million job openings, the measure revealed Tuesday.

At the same time, 4.4 million people quit their jobs in February, part of what’s been called “The Great Resignation.” Though the rate of workers coming back into the workforce since the pandemic pushed many out has returned to pre-COVID-19 levels, the rapid growth pace in the economy has outstripped the return. There are still some 3 million workers who have yet to return to the trenches, according to the Labor Department.

Higher wages are helping somewhat, but given the figures, maybe not enough.

Notable Calendar Items

March 30: ADP Nonfarm Employment Report

March 31: Core PCE Price Index, Crude Oil Inventories, Gasoline Inventories

April 1: Unemployment Rate, ISM Manufacturing

April 4: Durable Goods

April 6: MBA Mortgage Applications

April 7: Jobless Claims

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image sourced from Pixabay

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.