Inflation, Oil Prices, and Global Tensions
October 15, 2023 Update
Last week, it was time for the inflation index, and the reading came in at 3.7% YoY, which was as expected. However, the concern is that this number remains the same as the previous month and is higher than the 3.1% reading we had in June.
The inflation trend is down, yet the market fears that it will take too long before we go below 3%. Is the “stickiness” that matters.
The 10-year treasury yield decreased during the week, and it's crucial for stocks that it continues to stabilize or trend downward. This marks a beginning, and I'll watch closely to see if a sustained trend develops in the future.
Unfortunately, oil prices had a strong move (+7.6% for the week) as the conflict in the Middle East got more complex and uncertain.
Sure enough, equities linked to the energy sector had every good week as they tend to move in synch with oil prices. See below the RSPG 0.00%↑ Equal weight Energy ETF trying to break out again:
Looking at the Equal weight SP500 RSP 0.00%↑ it closed the week slightly higher, at the bottom of the consolidation box below:
If the index breaks down from where it is we might get a bad October. No assumptions. Let’s see what happens.
One thing I noticed was that the Consumer Discretionary Equal Weight ETF has started to look bad which speaks to increased odds of a recession on the horizon. This is what Mr. Market is thinking if Consumer Discretionary starts to underperform:
In a nutshell:
We are still in a complex to-read environment
The war in the Middle East increased the complexities as the tensions between the US, China, and some Arabic countries are mounting
Inflation is not a real issue right now unless oil prices go above 100
The probability of a recession in the first 6 months of 2024 is increasing
Is time to stay defensive: last week Gold prices went up and so did the volatility index $VIX
Earning season is starting and better-than-expected earnings and guidance will help clarify scenarios
Seasonality is typically good from mid-October through January
PORTFOLIOS
Last week my two positions were triggered. So I got into PDD 0.00%↑and ACMR 0.00%↑ .
This week I am standing still. Let’s hope we’ll get good news from the war areas.
-
Important: This is not investment advice. Consult a licensed financial advisor before making any investment decision.