04|26|2022

Oil: The Inflation Maker | April 22, 2022

AUTHOR: Jason J. Roque, MS, CFP®, APMA®, AWMA®
TITLE:       Investment Adviser Rep – CCO
TAGS:   S&P 500, NASDAQ, Rates, Inflation

Oil fell and markets fell with them. Why did the inflation maker not have a positive impact on equities?

Monday                            S&P 500 0.02% | NASDAQ 0.14%

Market movement was choppy all day. They ended up roughly unchanged. Investors were digesting elevated Russian activity in Ukraine and mixed earnings data. An outperformer was Bank of America as they capitalized on consumer lending, which will likely slow in the second quarter.

Tuesday                            S&P 500 1.61% | NASDAQ 2.15%

Stocks came out of the gates smoking hot on Tuesday. Yields were rising, which would typically signal a stronger S&P 500, but it was NASDAQ that led the way. This came as a result of weaker energy prices. That would signal weaker inflation and less impetus for rate hikes.

Wednesday                      S&P 500 0.06% | NASDAQ 1.22%

Markets ebbed and flowed between gains and losses throughout the day. Crude inventories fell more than expected, causing oil prices to be more volatile on the day. Earnings data performed well with the exception of United Airlines.

Thursday                          S&P 500 1.50% | NASDAQ 2.06%

The trading day started red hot with the S&P 500 up over 1%; however, that faded immediately. The fade came as yields pressed higher. Equities sold off as inflationary pressures lead us to persistent rate hikes likely throughout next year.

Friday                               S&P 500 2.77% | NASDAQ 2.55%

The selling continued into Friday. The pressure on yields continued and oil prices continued to ease. Those easing prices did nothing to buoy stocks. Oil prices struggled as a result of continued lockdowns in Shanghai. The lack of demand from that region has dampened prices.

Conclusion                       S&P 500 2.60% | NASDAQ 3.60%

Oil Prices have softened over the last week. On the surface, this can be seen as a positive as it would signal weaker inflationary pressures over the next several weeks (and if it persists, months). “If it persists” is the key, however. The current move in oil prices has to do with slowing demand as Shanghai remains under a COVID related lockdown. If they were to reopen soon, that demand comes back online. More concerning is the impact their closure will have on supply lines a few months from now. Our demand will deplete inventories and shelves likely will not be restocked in time for that depletion. This will further delay the softening of inflationary factor.

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