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Oil price volatility, airlines lower, energy up (0:25) Banking stocks down; private credit concerns (2:50) FOMC meeting next week and beyond (4:50) FedEx, Oracle earnings (7:10)
Transcript
Rena Sherbill: Brian Stewart, welcome back to another week of Wall Street Roundup. Always great to have you.
Talk to us. We missed last week. We have a war going on longer than many have anticipated. Is oil top of mind for you?
Brian Stewart: Oil prices (CL1:COM) (CO1:COM) were hovering in the low 60s level in early February. Now they’re in the mid 90s. They have at times pushed above 100 though haven’t really stayed there for any meaningful amount of time.
Predictable results of that, airline stocks are lower. The airline ETF (JETS) is down about 2% this week about 18 % in the past month. Honestly, airlines are kind of running into a perfect storm. There’s the higher oil prices.
Meanwhile, the war itself is causing travel disruptions in the region. And then you have at the same time, the DHS shut down, which isn’t supposed to affect TSA and those kinds of things, but is a lot of reports of long lines for checking and things like that. So you just have a lot of stuff going down in the airline industry at the same time.
So you have a stock like Southwest (LUV), which is down 5 % this week and down about 25 % in the past month. The stock was at a new high before we kind of hit the recent turbulence. (UAL) is down 2 % this week, down about 20% for the month. So no real surprises there in a situation where oil prices spike, you always look to the airlines first as kind of the canary in the coal mine, the first affected.
Meanwhile, it’s been kind of a jamboree for energy stocks so far in the last couple of weeks, kind of expected there as well. They were already seeing a lot of attention. I’m talking about the energy sector writ large was already seeing a lot of attention with the, kind of understanding that the AI build out is going to be an energy bonanza.
They’re going to need a lot of power to run the data centers. And so energy stocks have been seeing a lot of attention lately. Specifically oil stocks recently, obviously with the conflict in Iran.
You have Chevron (CVX) up 3% for the week, up 7% for the month, up 28% year to date. Exxon Mobil (XOM) up about the same amount year to date. Chevron reached a new high recently. Exxon Mobil is bouncing around near its highs.
In the oil sector, it’s going to be a little bit of a stock picker situation just because different companies are going to have different exposure to the conflict. But certain energy companies, certain oil companies, it’s just the higher prices is just kind of gravy at this point.
Rena Sherbill: And what else are you looking at in the market?
Brian Stewart: I think the other key topic is the banking stocks have been down recently. This is kind of more private credit concerns. JP Morgan (JPM) this week, marked down loans in its private credit groups, that caused concern. Honestly, there hasn’t been a huge reaction in the market.
JP Morgan is back a little bit from where it was earlier in the week. It’s now basically flat for the week. But it’s down about 5 % for the month. Going through some of the bigger ones, Wells Fargo (WFC) down 13 % for the month, you have Goldman Sachs (GS) down 12%.
So you’re seeing concerns building over the last few weeks that there’s kind of a ticking time bomb in these private loan funds that are out there.
Interestingly, this is true about the war as well. If you look at the performance of the S&P 500 (SP500) out of context, just look at the list of the daily performance of the S&P 500. Nothing seems out of place at all. I think the S&P has been down like five or the last six sessions, something like that, as we’re speaking now, but they’re all very, very modest declines. It’s still kind of hovering in the same range it’s been in since November. We’re only about five percent off of highs for the S&P 500.
Meanwhile, you have continued chatter about whether or not we’re in an AI bubble. We have a murky to worrisome job market. We have inflation being sticky above 3 % with more inflation pressures coming from energy on the way. You have all these things going on and the market has been pretty resilient. So the question becomes is kind of a whistling past the graveyard kind of situation or is the market right to not overreact to these situations?
Rena Sherbill: What would you say about the upcoming FOMC meeting and what may happen to rates? Whether or not that’s affected by what’s happening with oil prices and inflation at large and what are your thoughts there?
Brian Stewart: So as it stands, the market is showing a 99 % chance that rates are going to stay the same. Honestly, that’s true for a pretty long horizon. So looking to the April meeting, it’s a 93 % chance that rates will be the same after that meeting. Looking to June, it’s 74%. It’s a 35 % chance that we’re not going to get any cuts at all this year. And if those come, those are going to come after September, like in the September meeting or after that’s kind of what the market is betting right now.
We got PCE numbers that came in recently showing core PCE. That’s a that’s the fed’s favorite inflation measure. So core PCE was up three point one percent in January. The again, the Fed’s target is two percent. So not only is it above, it’s a full percentage point plus above I think the market had kind of gotten used to, okay, we might not be able to get to 2%, but 2.4, 2.5, we can kind of live with it.
3% is getting back to the point where you kind of have to put your inflation fighting hat back on. It’s complicated by the fact that we’re to get a change over in the leadership at the Fed. We’re still waiting for Senate approval of that, but as soon as that comes, you just don’t know what the personality of the new Fed chief is going to be.
Trump obviously has been pushing for lower rates very aggressively this entire year and even before. So his handpicked new Fed chief is probably leaning in that direction just in terms of getting picked for the job. But with inflation high, it’s not clear that that’s what’s going to happen.
I think for the near term, we have kind of pretty good idea of what’s going to happen just because the markets are betting that there’s practically no chance that we’re going to get a cut this time around.
But I think there’s some uncertainty that starts to build later in the year and we’ll just have to follow the numbers and see what happens.
Rena Sherbill: Anything else macro-wise worth pointing out for this week or next?
Brian Stewart: Besides the Fed decision coming next week there’s not that much to keep an eye on. Crude inventories has now become a crucial economic measure. So I think it’ll be important to look at that. That comes weekly, comes on Wednesday.
Looking ahead to like at earnings, you have FedEx (FDX) reporting, FedEx is in a bucket of other companies that are being affected by oil. FedEx is down about 7 % in the past month, which is better than the rival (UPS), which is down about 18 % in the past month. So obviously those are companies that rely heavily on fuel to do their job. So it’d be interesting to see FedEx’s commentary on that.
Just while we’re on the topic, other companies that are sort of outside the airlines that are being hurt by the oil thing. Carnival (CCL), which is also reporting next week, cruise line, it’s down 24 % in the past month. So getting its commentary will be critical next week as well. It’s a good data point in terms of just general, what are executives thinking about in terms of the current oil situation.
And then while we’re just talking about like individual companies and earnings, we should mention Oracle (ORCL) reported this week. So the stock popped 9% after its earnings, strong earnings and guidance also provided an update on its spending and funding plans.
One of the worries about Oracle was the same kind of worry that was happening with all the hyperscalers, just that they’re spending so much on this AI build out that maybe it becomes sort of a pyrrhic victory to even win the AI fight.
Stock was up sharply, but in context, it really wasn’t that impressive a move. The stock reached a 52 week high in September around $345. It’s now trading at 156. So well, well, well below that high. It’s not even back to where it was in late January, still down about 20 % for the year.
While I think you should see that 9% from Oracle is kind of a relief rally, this doesn’t look like there’s a bubble bursting anytime soon, but optimism at least for that stock is still well off of levels it was kind of late last year.
So I think we’re still in kind of a wait and see situation with the AI stocks, whether or not, especially with energy prices going up, you’ve got economic uncertainty, there’s still worry about the general logistics of the AI build out itself, whether or not all that money is gonna be worth it, whether or not they can even get it done.
So I think that’s been the motor for the market over the last couple of years. And right now we’re just waiting for the next data point to figure out what’s next.
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