Key points to remember:
- Shares are mostly mixed, but a few individual companies are in the news
- Consumer Price Index numbers tell a complex story
- Rising oil prices and forecasts prompt alternatives
Oil futures (/ CL) are up 1% this morning ahead of the crude oil inventories report. While the NY Empire State Manufacturing index was almost double the forecast. However, the news failed to move the markets.
It’s hard to get Microsoft (MSFT) to move 1%, but its announcement that it is increasing its quarterly dividend by 11% and launching a $ 60 billion share buyback program is getting stocks moving. The news helped support Dow Jones Industrial Average Futures (/ YM) which appear to be fighting downward pressure. Stock index futures are mixed Wednesday morning with the NASDAQ 100 (NQ) and S&P 500 (/ ES) on the positive side.
Meanwhile, Business Wire reported that Goldman Sachs (GS) has announced plans to buy GreenSky (GSKY) for $ 2.24 billion. GSKY is the largest fintech platform for home improvement loan origination. The company allows consumers to “pay as you go” using flexible loan products.
A few Covid actions are making waves this morning. Regeneron (REGN) traded more than 2% more in pre-market trading on news that the US government has purchased an additional 1.4 million doses of its monoclonal antibody treatment for Covid-19. CureVac’s vaccine (CVAC) disappointed clinical trials that led the company to cancel deals with two manufacturers.
Some gaming stocks are trading lower again because China and Macau want to tighten their control over the casino industry. Wynn Resorts (WYNN) fell 10.9% on Tuesday and Las Vegas Sands (LVS) was down 9.6% and both stocks were down 5% in pre-market trading. Regulatory changes are difficult to predict, so be careful when trying to choose a floor.
Other stocks to watch include Citrix (CTXS) which climbed 7.8% in pre-market trading, with the Wall Street Journal reporting that hedge fund Elliott Management held more than $ 1 billion in stocks. And Squarespace (SQSP) because it is up 4.9% before the opening.
Inflate the numbers
Tuesday’s consumer price index (CPI) turned out weaker than expected with a seasonally adjusted rise of 0.3% in August. The July CPI rate was 0.5% and the June rate was 0.9%. So August was definitely an improvement. However, inflation has increased by 5.3% in the past year, which is felt by many consumers.
Core inflation, which excludes more volatile consumer products like food and energy, rose just 0.1% in August, but 4.3% year-on-year. The slowdown in price increases is probably a good sign that current inflation may only be transitory. However, Monish Patolawala, chief financial officer of 3M (MMM) told a conference in Morgan Stanley (MS) on Monday that inflation is higher than expected and that it is reaching the company’s bottom line.
It is often difficult to know to what extent inflation will actually affect the consumer. Companies may have to pay higher prices for raw materials, parts, machinery, etc., but they cannot always pass on these additional costs. A basic principle of economics is that a product is only worth what a person is willing to pay for it. If the company increases the price of a product, consumers can choose not to buy it or buy less.
Losing the consumer puts a business in a difficult position as it must determine whether it can absorb the costs and go for a lower profit margin or whether it should abandon the product. The summer earnings season has been fairly positive, which means that many companies appear to have dealt with recent inflation issues. Hopefully businesses can follow the trend.
The shares are deflating
On Tuesday morning, stock futures initially rallied on the CPI news. However, the rally faded into the morning session. The S&P 500 index closed lower on Tuesday for the sixth consecutive session. Concerns about the Delta variant continue to haunt investors, at least with the current uptrend without any major corrections.
Slowing inflation could mean the Fed won’t feel the need to cut any sooner, putting less pressure on Fed Chairman Jerome Powell. Powell seems to like President Biden, according to Barron’s, some Washington observers believe Powell will get a second term as Fed chairman.
Apple (AAPL) also traded lower despite its highly anticipated Apple event. While the colors of the new phones are impressive, it can be hard to imagine consumers paying over a mile for a new phone as the cost of living continues to rise.
A new energy crisis? : In Monday’s Bloomberg interview, Goldman Sachs (GS) global head of commodities research, Jeff Currie, reiterated his forecast of $ 80 per barrel of crude oil (/ CL) by now the end of the year. In June, a Bank of America Global Research report forecast $ 100 a barrel in 2022. As core CPI suppresses oil and food prices, oil prices could be a major drag on the economy. it achieves these goals.
If oil reaches these levels, oil drillers like Precision (PDS), Transocean (RIG), Nabors (NBR) and Helmerich & Payne (HP) could potentially benefit. Due to the high amounts of capital required to cover drilling costs, high oil prices make drilling more financially viable.
Natural gas (/ NG) prices have also climbed around 100% since the start of the year. According to TBEN, Europe is experiencing a gas shortage which is helping to drive up the goods. Natural gas storage is 16% below its five-year average in Europe and 7.6% in the United States. Natural gas companies like Chevron (CVX), ConocoPhillips (COP), Hess (HES), Occidental (OXY) and Pioneer (PXD) are among the companies ready to help meet growing demand.
The potential rise in the price of natural gas will likely correlate with the harshness of winter temperatures.
The nuclear option: Another product that catches the attention of futures traders is uranium (/ UX). The rare material has exploded the chart by about 45% since mid-August. Uranium miner Comeco (CCJ) is one of the few miners to benefit from the rally.
There aren’t many uses for uranium and the most important is nuclear power. In June, Business Insider announced that Bill Gates and Warren Buffet were planning to build a “Next-Gen” nuclear power plant in Wyoming. Bill Gates is the founder of TerraPower which designs nuclear reactors and received initial funding of $ 80 million from the US Department of Energy. While Berkshire Hathaway (BRK / A) by Warren Buffet owns the PacifiCorp utility. The plant is expected to cost $ 1 billion and take about seven years to build.
The announcement places the partnership in a wide open field. Bloom Energy (BE) is one of the few nuclear power companies still listed on the stock exchange. However, because some still view nuclear power as controversial, it could cause some regulatory blockages for the industry.
Interest in Shorting Goes Cold: Goldman Sachs Global Investment Research has reported that short interest in S&P 500 stocks has fallen to its lowest level since 2000. Short selling is a strategy in which an investor tries to play on the downside of a stock by selling borrowed stocks and buying them back at a lower price. Of course, the risk of loss is potentially unlimited since there is no limit to the increase in the price of a share. Short interest is a measure of the number of shares of a stock currently sold short.
Last year, many bearish investors actually took it in shorts as meme traders targeted their positions and forced them to buy back their stocks. In some cases, at very large losses. Companies like GameStop (GME) and AMC (AMC) saw huge gains as shorts were squeezed out of their positions.
Many short sellers may be a little nervous about playing bearish in the market. The last time short-term S&P 500 interest was this low was during the dot-com bubble of 2000. This low level may suggest that the market is overheating.
TD Ameritrade® commentary for educational purposes only. SIPC member.