Market Perspective for September 16, 2019

The Russell 2000 Index rallied 0.41 percent after a shock to the oil market accelerated the rotation into value shares and accelerated the short-squeeze in the energy market. The other major indexes slipped on the day, with the S&P 500 Index losing 0.31 percent.

SPDR Energy (XLE) advanced 3.36 percent on Monday, SPDR Real Estate (XLRE) 1.04 percent and SPDR Utilities (XLU) 0.08 percent. SPDR S&P Oil & Gas Exploration & Production (XOP) rose 10.80 percent.

Crude oil spiked to $62.90 after Saudi Arabia’s oil production was attacked Saturday morning. It was still unclear if rebels in Yemen hit the facilities with a drone attack or if as later reported, cruise missiles were fired from Iranian territory. The $8 increase per barrel of oil will translate into about a 10-cent increase at the pump.

The Federal Reserve meets this week, with a rate announcement on Wednesday. The odds of a cut have been tumbling with strong economic data, stocks near all-time highs and now an oil shock that will boost consumer and producer price inflation.

Housing starts, building permits and existing home sales for August are also out this week. Economists expect a pickup in housing starts, but lower permits and sales data. The homebuilders’ confidence index for September is due on Tuesday.

Chinese economic data was relatively weak in August, led by a slowdown in industrial production growth and slower-than-expected lending growth.

The U.S. Dollar Index rallied 0.4 percent on Monday. Surging U.S. oil and gas production insulates the U.S. from shocks as we are less dependent upon Saudi imports. China and Europe are more vulnerable to Middle East supplies. iShares MSCI EAFE (EFA) declined 0.88 percent on Monday and iShares MSCI Emerging Markets (EEM) slid 0.79 percent.

Fed Ex (FDX) will release their earnings report on Tuesday. Analysts forecast earnings of $3.20 per share on revenues of $8.9 billion. Fed Ex earnings are always closely followed, but investors will also be tuning in this week to hear how the jump in oil prices could affect the transportation sector.

 

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