Brent Crude Climbs. Banks See $95-$100/Barrel? Tiger Woods vs. Dow.

09/25/2018 11:25 am EST


Nell Sloane

Principal, Capital Trading Group

Stocks are mostly steady to start the Tuesday morning and the indexes remain near their all-time highs.  I’m concerned about higher energy costs moving forward into 2019.  I’m worried how this will impact and push inputs on the farm higher in 2019, writes Nell Sloane.

The S&P 500 (SPX) is up +17.2% in the past 52-weeks; The Dow (DJI) is up by about +8.0%; The Nasdaq (IXIC) is up +28.2%.

If we want to take a little further look back, the last time Tiger Woods won a golf tournament the Dow was trading at 15,600. Today it is north of 26,600. What an amazing run!

The media is starting to turn up the advertising campaigns for the November midterm elections, now about 30-working days away. Most of the early talk is if the elections were held today, Republicans look likely to lose the House, but may well keep – or even increase their majority – in the Senate.

This keeps many in the media talking about the possibility of once the Democrats gain control in the House, then being able to bring impeachment charges against President Trump. The market obviously sees it as only “noise” at this point, so I see no reason to go into much detail until we learn more.

There’s also a lot of noise now circulating around the Brett Kavanaugh Supreme Court nomination bid. Nobody seems to really know what is fact or fiction. From what I understand, there are now three women who have come forward with accusations of sexual misconduct.

Kavanaugh is scheduled to testify on Thursday in front of the Senate Judiciary Committee about allegations that he sexually assaulted a fellow teenager in 1982 while he was a student at Georgetown Prep high school in the Washington, D.C. suburbs. Both parties say the other is lying and it’s clearly become a game of he said vs. she said and screams more Washington drama.

I often remind myself of an old trade adage, “the stock market cares more about profits than politics.”

The Federal Reserve is starting their highly anticipated two-day policy meeting today. The result of the meeting will be announced at 2 pm EDT tomorrow.

Most inside the trade are looking for another quarter point hike in interest rates, pushing them to their highest level in over a decade. There are actually some forecasting a much more hawkish half point move, but I just don’t see it happening.

I think it’s another small move, with perhaps a slightly more hawkish undertone in the commentary. A tight labor market and higher wage inflation seems to be the biggest nearby concern for those wanting more aggressive action.

Those who are more dovish continue to point towards concerns surrounding ongoing trade negotiations and urge the Fed to be more hesitant and cautious in their actions.

An item I’m keeping a close eye on is crude oil and energy costs. Historically, rapidly rising energy expense is snake that can strangle a bull market. Prices of crude oil are now at 4-year highs and may continue to push the upper extremes.

Iranian exports have already fallen by about -500,000 barrels per day. According to the International Energy Agency lost Iranian production will soon spike to -1 million barrels per day. There’s also the continued production losses taking place in Venezuela and ongoing military uncertainty in Libya.

Some energy insiders are saying a price spike could certainly be in the cards as there's really no supply response or answer for a potential disappearance of  2 million barrels a day beginning in Q4 of 2018.

There’s talk that outages in Iran might be more severe than the trade has forecast and that bottlenecks in U.S. logistics may make it difficult to replace lost supplies. I’m certainly not trying to panic anyone, but I heard some very large investment banks now have a price target for Brent crude oil at $95 to $100 per barrel by Q2 of 2019.



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