The US stock markets started the week precariously but ended in quite strong and positive vibes with the S&P gaining 2.55%, the Dow 2.31%, and the Russel 2000, representing the small caps, 2.21%. On Monday morning the Crude Oil WTI is trading at USD83.52 and Brent at USD85.79 with unstoppable surges during the week adding 3.72% and 3.85% respectively. With the earnings season traders and investors’ moods are changing quite quickly, as the start of the week was marked by the higher energy prices and continued pressures from supply chain disruptions. Oil prices are at their highest for three years, fostered by OPEC restrictions and expectations that utilities companies would switch to oil from natural gas due to supply shortages in Europe. Natural Gas, on the other hand, as measured by the equivalent energy unit in oil, was trading at a record 2008 year hi during the week. Supply chain shortages found a number of retailers with destocking, ahead of the holidays, with AAPL suffering production undersupplies of IPhone 13, as the most decent example.
The momentum feeling was bolstered on Wednesday with Core US inflation at 4% at September, above the Fed 2%yoy inflation target but in line with expectations. On the other hand, the minutes released by the Fed during the week imposed a breath of air to investors, as they hinted a prolonged, multi-year near-zero interest base rate conditions, justified by the “current economic conditions”. Tapering of the QE would also be more mild and investor-convenient at just USD10B per month. In such a Fed-friendly environment, the biggest bull-boost to the markets came from commercial and investment banks’ financial reports. Regardless of the inflation and high energy prices, there is pretty secure evidence that the US economy is strong and companies are adaptable, versatile and resilient. MS scored its best quarter ever, with equity trading revenue surging with 24%. The same optimistic picture was present in City’s stock trading department. As mentioned many times before, the easy liquidity pumped up by the Fed all comes into stocks, bonds and derivatives trading, together with commercial and consumer crediting, at almost zero cost for the banks. The figures posted by the big four /GS,MS,C,BAC/ all defied analysts’ lower expectations. A mild challenge remains for C and BAC, fighting up for talents, as commented in their Managerial Discussion reports, which on the other hand is indicative of strong labor market conditions for high-skilled workers.
The best part is that markets are now ready for more aggressive measures by the Fed to fight inflation, according the MS’s CEO, James Gorman, adding that “interest rates higher in the next year is not a crisis, nor unexpected”. The US economy showed to be pretty fat, nourished by all different kinds of fiscal and monetary measures, together with its highly competitive and adaptable spirit. Retail sales for September showed a 0.7% gain, much bigger than the -0.2% expectations, core retail sales jumped with 0.8%mom, again ahead of the 0.5% expected, and jobless claims stood at 293k, much lower than the 315k expected. Even though inflation is reflected in retail sales, it is also fostering higher salaries on the job market, which suffers shortages in the skilled labor segment right now.
Oil producers, traded on NYSE, with firm positive company-specific sentiment, besides the industry commodity price boost, remain DVN, COP, MRO and HES. It would be pretty relevant to explore them for short and mid-term long trading positions, while closely watching the oil prices for an expected healthy correction in the pending week.