Stocks Brush Off Oil Surge, Traders Shift Focus To Fed And Interest Rates
Stocks closed modestly lower yesterday, in spite of crude oil jumping by 13% after Iran's weekend attack on Saudi Arabia's oil industry.
U.S. equities shrugged off the spike in oil prices. And this has everything to do with the fact that the U.S. is energy independent.
Sure, we still import oil (roughly 10.2 million barrels per day). How much, what kind of products, and from whom, depends on prices and various business factors. But we also export oil too (roughly 7.5 million barrels per day). So the word energy 'independent' needs an asterisk by it.
But it's clear that the U.S. energy market is night and day different than what it was 15-20 years ago and longer.
As recently as 2005, we imported roughly 60% of our consumption needs. That number is now less than 19%. (The net number however is much smaller).
The biggest provider of our imports is Canada. Saudi Arabia supplies just 10% of our imports.
With it being estimated that Saudi's oil production may have been curtailed by as much as 6% a day, that drop in production represents less than a 6/10ths of one percent displacement for the U.S. And that's something we can easily make up ourselves or from one of our other suppliers.
Once upon a time, a big disruption like that would have wreaked havoc on our economy. Now, the U.S. can brush it off. And since one person's cost is another person's profit, the U.S. companies that export their energy products are actually benefiting.
While we hope Saudi Arabia's production can get back to normal asap so it doesn't cause hardships for others, the U.S. is in a strong position where we can weather these types of situations.
Given that, everybody's focus will be back to the Fed this week (Wednesday, 9/18 at 2:00 PM EST). They are widely expected to cut rates by a quarter point. And while a half point is unlikely, you never know. That being said, there's no guarantee they'll do anything on Wednesday. But the odds are greater than 90% that we do see a quarter point cut.
What traders will really be waiting for is the FOMC Forecast and Fed Chair Jerome Powell's Press Conference shortly thereafter. What do they have in mind for the rest of the year? There's another FOMC meeting in October and then again in December. If they cut on Wednesday, is that it, or can we expect more? And if more, how much more and when? I doubt any of that will be spelled out. But the reading of the tea leaves will be in full force on Wednesday trying to decipher everything the Fed says and doesn't say.
But our economy is strong. And a rate cut will only serve to increase our growth outlook.
You never know what will happen to the market on any given day. Even on decidedly good news.
But a rate cut, ultimately, should help usher in new highs for stocks.
This truly is an historic time for our economy and for the market.
So make sure you're taking full advantage of it.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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