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(Thursday Market Open) Today marks the end of a turbulent quarter in the market, which saw a net decline but included a sharp drop and a strong recovery along the way. So far today, futures for the major indexes aren’t moving that much. However, as the market digests important inflation and employment data we could see more volatility emerge. However, a less volatile day ahead of tomorrow’s jobs report may be just what the market needs. The consolidation of equity markets, commodity markets (excluding oil), and interest rates might be a good sign for investors.
Potential Market Movers
Before the opening bell , we’ve already seen a lot of activity this morning. It started with reports that the United States is considering a huge release from the country’s strategic petroleum reserve (SPR). News of the release of up to 180 million barrels knocked Crude Oil Futures (/CL) down more than 5% this morning, following yesterday’s increase. And the news didn’t just affect crude. RBOB Gasoline Futures (/RB) are down 3.5% and Heating Oil Futures (/HO) are also off 3.5%. The Organization of Petroleum Exporting Countries and its partners including Russia (OPEC+) also met today and decided to stick to its plan to slowly increase production.
In response to the news regarding oil and inflation, Dow Futures (/YM) are off .03%, S&P 500 Futures are up .07% and Nasdaq 100 Futures (NQ) are up .27% this morning. This follows an overnight session in Asia and afternoon session in Europe that are mostly lower.
A few important economic reports were released this morning. Given the current concern about inflation, this morning’s Personal Consumption Expenditures (PCE) report was closely watched. This is the Federal Reserve’s preferred inflation gauge and measures goods and services targeted toward individuals. It came in showing a .6% monthly increase, taking the annual increase to 6.4%. Excluding food and energy, the annual increase came in at 5.4%.
The weekly Unemployment Claims report came out this morning as well, and new claims were 200,000, greater than the 195,000 forecast. This report is largely a prelude to tomorrow’s monthly Unemployment Report.
The other big economic report that came out this morning was the Personal Income and Outlays report. It showed that consumer spending rose only .2% in February, a significant drop. This could be indicative of the declining psyche of consumers, and we’ll have to see how this affects retailers.
Given this morning’s news, the yield on the 10-Year Note (TNX) fell back down to 2.38%.
On the stock front, Walgreens (WBA) is off nearly 4% in pre-market trading despite having beaten both top and bottom-line estimates.
Reviewing the Market Minutes
The four-day winning streak for stocks came to an end on Wednesday as optimism about the prospect of peace in Ukraine waned. Russia had indicated it would reduce military operations in northern Ukraine; however, much of the west remains skeptical about the likelihood of de-escalation. The S&P 500 (SPX) fell .63% and the Nasdaq Composite ($COMP) fell 1.2% on the day. Despite Wednesday’s lackluster results, the market has had a remarkable run since the mid-month lows, with the Nasdaq up nearly 15% and the S&P 500 up over 10%.
Complicating matters for the markets overall have been the rise in Crude Oil (/CL) prices. Although they are down from their early March highs, they rose 3% on Wednesday—before news of President Biden’s decision to release oil reserves—and reached over $107 per barrel. Regarding peace talks, Commonwealth Bank analyst Tobin Gorey stated, “the oil market, at least, has a strong degree of skepticism about any ‘progress’.” Of course, rising oil prices mean higher input costs for many segments of the economy, and this only exacerbates inflationary pressures. Given current concerns about the prospect of economic slowdown, inflation is a key focus.
Rising oil prices aren’t all bad, however. On Wednesday, some of the biggest gainers were from companies in industries that benefit from rising oil. Valero Energy (VLO) was up 3.9%, Phillips 66 (PSX) was up 4.7%, and Marathon Petroleum (MPC) was up 2.6%.
Another significant market mover was Micron Technology (MU), which shot up to $86.24 at Wednesday’s market open but then fell all the way to $78.60. The jump up in price is the result of an outstanding earnings release on Tuesday but concerns about slowing economic growth knocked it down. Micron ended the day off 3.5%.
Three Things to Watch
Natural Gas Concerns: Crude oil isn’t the only commodity that has skyrocketed this year. The conflict in Ukraine has also boosted Natural Gas futures (/NG). It is up 45% since the first of the year and faces continuing supply pressure. Germany declared an “early warning” that it may face a natural gas emergency because of possible disruption of supply from Russia from both sanctions and a Russian demand that it pays for gas in rubles. German Economic Minister Robert Habeck indicated that supplies are safe for the time being but stated “all gas consumers—from industry to households—are called on to reduce their consumption as much as they can.” Lowering demand, all things being equal, should help with rising costs.
Sanctions: Demand for Russian energy is clearly a conundrum for those countries that are at odds with Russia. On the surface, sanctions may be appealing, but the reduced supply has economic consequences, as is evidenced by inflation in many commodities, particularly those related to energy. The Polish government just adopted legislation that bans imports of Russian coal, which currently represents 20% of Polish domestic coal use. Germany announced that it will stop buying Russian oil by the end of the year and will cut out buying Russian gas in 2024. One complicating factor is that the European Union, United Kingdom, and United States aren’t seeing eye-to-eye on exactly what sanctions to implement and when.
Alternative Energy: The challenge in lessening dependence on Russian energy is that right now many countries, especially in Europe, are quite dependent upon it. In the United States, steps are proposed to lessen energy needs, but they often represent a drop in the overall energy bucket. On Wednesday, the Biden administration announced plans to spend $3.16 billion to retrofit homes in low-income areas to make them more energy efficient. Worldwide, more and more energy is coming from alternative sources, but coal is still the largest single source. According to a report published by Ember, 10% of the world’s energy came from wind and solar in 2021, and “clean” sources accounted for 38% of the world’s total power supply. Obviously, the world can’t switch energy sources quickly enough to spare us from the energy price fluctuations we have seen, but it does highlight the prospect of investment in companies working with alternative energy—companies such as First Solar (FSLR), Sunnova Energy (NOVA), Tesla (TSLA), and Gevo (GEVO). These fall into different industry groups but are just a few companies that fall into the non-traditional energy space. There is no guarantee that alternative energy companies will be winners, but they are likely to be in the news for years to come.
Notable Calendar Items
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
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