Key Takeaways
- Oil Prices Surging
- Chinese Economy Weakening
- Resurgent IPO Market
A jump in crude oil prices and further weakening in China sent stocks lower to kick off the holiday shortened week. The S&P 500 lost 0.4% while the Nasdaq Composite was down 0.1%. Higher oil prices could be cause for concern, especially in an inflationary environment that seemed to be coming under control.
Yesterday, Russia and Saudi Arabia both announced oil production cuts that will last through the end of this year. Many analysts expected cuts to be extended for another month, so the actual length caught many off guard. Crude oil prices are now up 20% in the past three months and back to levels not seen since November of last year. Higher prices are being felt both at the pump, where consumers are paying an average of $3.80, but also by airlines who are seeing a jump in jet fuel prices.
The cut in oil production is partly being attributed to offsetting Iranian oil supplies. However, weakness out of China and slowing demand there continues to persist, which could also account for the cutbacks. Yesterday, China reported services output slowed to its lowest level in eight months. That comes on the heels of a report last week that manufacturing output contracted for a fifth consecutive month. The weakening Chinese economy may also help explain a newly issued mandate forbidding state employees from using iPhones and other foreign branded phones at work in hopes it will stimulate demand for Chinese brands. China currently accounts for about 19% of Apple’s
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Elsewhere overseas, the EU announced a list of companies that face regulation under the newly enacted Digital Markets Act. The legislation is designed to curb the power of big tech companies, considered gatekeepers, while increasing competition for smaller companies. Companies meeting a certain threshold of users and market capitalization are subject to the legislation. Six American companies were named to the initial list including: Alphabet, Amazon
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Back here at home, we’re seeing a significant jump in consumer debt. Debt levels breached $1 trillion in Q2 for the first time, up 16% from last year. Consumer spending habits appear to be strong; however, with most Covid stimulus programs having ended, income levels may not be keeping pace with spending. The higher levels of debt are also coming at a time when interest rates have exploded higher, which could account for the increased numbers of delinquencies being reported. Those numbers are now back to levels not seen since 2019.
Taking a look at some individual stocks, shares of Roku are trading higher by 13% in premarket following the company’s announcement that they will be cutting 10% of their workforce. Chip designer Arm Ltd. is targeting a valuation north of $50 billion when they go public, possibly as soon as next week. The company is expected to price shares between $47 – $51 and could be a buoy for the IPO market. Also, Airbnb along with Blackstone
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Finally, I want to call attention to the current level of the S&P 500. Although I am not a chartist, I do speak with many. Currently, they see markets in a bit of a no man’s land. However, should markets become weak, the consensus opinion seems to be the next support level would be around 4460. As always, I would stick with your investing plan and long term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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