Market Overview

Oil Prices Back On A Roller Coaster: Will They Move the Markets?

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The three major benchmarks were moving nowhere in the early going today amid the push and pull of some major Dow Jones Industrials (DJIA) components as well as crude-oil prices. What might give it energy?

The government’s report on durable goods, which was also flat, did little to move markets ahead of the open. Orders outside of volatile transportation—reflecting core capital goods, or investments in business—slipped 0.4%, dropping for three of the last four months. On the brighter side, new auto sales jumped 1%.

For those who are fixated on every word out of the Federal Reserve, there will be plenty today. Out on speaking tours is a cavalcade of Federal Reserve members, starting with Chair Janet Yellen, who is scheduled to chat with the House Financial Services Committee, and five other Midwest regional presidents.

Crude oil prices again appeared to play havoc on the markets early Tuesday, flattening the open among the three major benchmarks after the post-presidential debate rally. But all that turned around by midmorning with the Dow solidly trading in triple digits throughout the rest of the day. What reversed the sentiment? The jump in consumer confidence (see below)? A return to the post-debate rally? Hard to tell.

When all was said and done, the market’s attempt to recapture Monday’s losses fell short but gains were logged. The DJIA took back 0.74% while the S&P Index (SPX) recovered 0.64% of its 0.86% loss and the Nasdaq Composite (COMP6) salvaged nearly all of its losses from Monday. The advancements were the first in three days, and COMP6 is on pace to finish Q3 next week with its best performance since 2013.

West Texas Intermediate (CLX6) futures were back on the rollercoaster they’ve been riding since hitting a 52-week high of $54.01 in early June. An informal meeting in Algeria between many members of the Oil Producing Exporting Countries, plus other titan producers like Russia, ahead of November’s formal meeting left traders with more doubt that a production freeze or cut was in the offing. Iraq and Saudi Arabia both said these talks were only “consultative,” according to news reports.

“Any hopes for a crude output freeze being agreed (to) in Algiers this week have been dashed today after Saudi Arabia joined Iran in saying any talks on curbing output will be consultative,” said Neil Wilson, markets analyst at ETX Capital, MarketWatch reported.

But don’t give up yet, he added. “We can now expect some more jawboning until OPEC meets properly in November, but it does seem like there is progress being made and a freeze could yet be agreed by year end,” he said.

At the close, CLX6 had sunk another 2.8% to settle at $44.67 a barrel but edged up about a dime in electronic trading later and this morning after the American Petroleum Institute reported another surprise fall in U.S. crude inventory, this time by 752,000 barrels. Since that June peak, CLX6 has lost better than 17% of its per-barrel price, and, despite these drains of supply, Goldman Sachs sees prices only falling further (see below).

Against this backdrop and more, Wall Street’s ostensible “fear gauge,” the VIX, retraced much of its climb on Monday, falling back nearly 10% to 13.10. Remember it spent most of the doldrums of this summer at 12 and below.

After the bell, shares of Nike Inc (NYSE: NKE) lost better than 4% of traction after the sports athletic-apparel manufacturer once again topped Wall Street’s expectations, but reported a single-digit rise in orders­­—a key measure of future sales—amid a double-digit jump in inventories on a year-over-year basis. In general, a glut of supplies has the potential to lead to marked discounts that then shrink profit margins.

NKE said it earned $0.73 a share, blowing past analysts’ projections of $0.56 a share and above last year’s $0.67 a share profit. Revenues reached $8.86 billion, which were a tad below Wall Street’s $8.88 billion forecasts but higher than the $8.41 billion a year ago.

Shares were off in the early going, enough so to earn it the dubious distinction of being the worst Dow performer this year, with the stock value down nearly 14% for NKE to take that No. 1 post from Walt Disney Co (NYSE: DIS).

More Oil Dips Ahead? That’s what Goldman Sachs commodities analysts Damien Courvalin and Jeff Currie said in a report Tuesday that markedly slashed futures price projections. Their forecast for Q4 now stands at $43 a barrel, far closer to recent futures prices than their original $50 a barrel estimate. Just two weeks ago, Currie, head of the commodities desk, told Bloomberg, he thought oil prices would trade in the $45- to $50-a-barrel range through the end of the year.

On CNBC Tuesday, Currie said fundamentals are weaker, supplies outstrip demand and all that will push prices lower. “It’s not about Algiers, it’s all about fundamentals,” he said, noting what he called the “wall of supply.” That’s the resources that will come online beginning next year from the large-scale capital investments oil producers made at the beginning of the decade.

What’s more, he referred to the “core of the new oil order,” which is that OPEC and low-cost oil producers have shifted to a strategy of pursuing market share and not the good of the cartel. “They fundamentally cannot pursue that same strategy of the cartel in the current environment,” he said. “You have never seen cohesion in OPEC if you did not have a demand shock. Demand comes down, refineries shut down, there’s no place to put the barrels, therefore, they cut. In the environment where we are today, due to excess supply, they don’t have that same advantage.”

Consumers’ Cool Confidence Climbs. Consumers haven’t felt this buoyant about the economy in nearly a decade, according to the Conference Board. The September confidence index surged to 104.1, its highest level since August of 2007, ahead of the official start of the Great Recession. Could that be a sign that the consumer is ready to keep up, maybe even step up spending? Remember consumer spending accounts for some two-thirds of the U.S. GDP.

Don’t bet on it­­­—consumers often say one thing when polled but take different actions. But what may be considered encouraging is that the share of those who think jobs are “plentiful” jumped 27.9% to its highest level since July 2007. What’s more, consumers’ impressions of present conditions and expectations also took noteworthy climbs.

The rise “suggests that the presidential election campaign is not having a detrimental effect on sentiment,” said Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients. There’s only been one debate and these polls were taken ahead of it, so it still might be too early to make that judgment.

To the Moon Elon! Some visionaries have futuristic dreams that many of us consider just that: dreams. But Elon Musk has been angling for ways to make those technological dreams come true and his latest pie-in-the-sky pitch is to colonize Mars. Yep. He wants to help inhabit that red planet with life, and laid out an ambitious plan at an international space conference in Mexico for humans to become a “multi planetary species” within 40 to 100 years. It won’t be cheap at $200,000 per trip, nor will it be without peril.

“The risk of fatality will be high, there’s just no way around it,” he said, according to press reports. “It would be basically, ‘Are you prepared to die?’ Then if that’s O.K., yes, you’re a candidate for going.”

He, however, won’t be a contender: “I would like to see my kids grow up,” Musk, who is the father of five, added.


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