SPX daily
The energy market may be the tail wagging the dog today.
West Texas Intermediate crude rose 1% and is near $80, while July natural gas is near $2.75 as US production declines. Oil was as low as $76.70 on Wednesday, but quickly turned around after signs emerged that OPEC+ would extend its production agreement (the meeting was moved to a virtual meeting, which likely means it's a rubber stamp).
As oil prices rose today, so did revenues. At first stocks shrugged it off – perhaps because options expired today – but with yields now 3 to 4.5 basis points higher across the curve, stocks are starting to take notice. The S&P 500 fell 13 points to 5,284 from a high of 5,305. These are certainly small moves but a sign of some uncertainty after the rush to records.
I also wonder if there isn't some reflexivity. Federal funds futures prices have fallen to 45 basis points this year from 51 basis points at the start of the week, which may reflect the wealth-boosting effect of equity markets.
There are also some doubts about growth.
Tony Pasquareello, global head of hedge fund coverage at Goldman Sachs, wrote:
“…a handful of the largest money managers I know have recently made strong arguments in favor of the viability of the US economy. If there is a common thread among them, it is the momentum behind spending on artificial intelligence, infrastructure, domestic transportation, and defense. I agree with the general thesis and will go on record that GS is calling for Q2 GDP growth of 3.2%, while the Atlanta Fed expects 3.6%…which contradicts the persistent pessimism I see in the press and hear on the street (specifically regarding the consumer, which I disagree with).”
As it has been for a while: one economic data point at a time.