September 6, 2022
Updates: This week includes a number of industry conferences where management teams will provide updates: 1) Bank of America gaming & lodging; 2) Bank of America media, communications and entertainment; 3) Barclays Consumer Staples; 4) Barclays Energy; 5) Citigroup Tech; 6) Evercore ISI Tech, Media and Telecom (TMT); 7) Goldman retail; 8) KBW insurance; 9) UBS chemicals; 10) Wells Fargo Health Care. The bar for Q3 earnings season (begins mid-October) appears to be pretty low with expectations for downside risk to margins and further FX headwinds. Quarterly results that look like Q2 numbers would likely cause a strong Q4 equity rally.
Energy: Last week, the G7 made plans to introduce price caps on Russian oil. Russia’s Oil Minister Novak followed up by announcing the country would not sell oil/products to countries participating in a price cap. Russia currently produces ~9.9Mbpd, which is ~12% of global oil production. Oil that Russia doesn’t ‘sell’ to G7 countries is still contributing ~12% of global production and prices would be relatively unaffected. Novak’s statement only has meaning if Russia cuts its daily oil production, and a ~3Mbpd production cut could result in Brent prices north of ~$180bbl.
SPX: Last Friday’s Jobs Report resulted in lower rates volatility, which translates to lower equity market volatility. However, today’s stronger ISM Services report is creating a big backup in bond yields, increased rates volatility and increased equity volatility. The CBOE Volatility Index (VIX) is up +0.94 points to 26.92 this morning, which increases the headwind on sustained equity rallies and pressures the S&P 500 to technical support at ~3900. Closing levels matter most with a break below 3890 likely resulting in a full test of the mid-June low at ~3660.