Stocks Soar, Along With Oil And Treasury Yields  Image: Bigstock Stocks surged yesterday with all of the major indexes closing sharply higher. Yesterday's better than expected ADP Employment Report set the tone early on after it estimated the private sector created 475,000 new jobs last month, which was well above the consensus for 320,000. But stocks really got going when Fed Chairman, Jerome Powell, began his semiannual testimony to the House of Representatives, where he essentially said he was advocating for a 25 basis point move when the Fed meets in 2 weeks. He also indicated the Fed was prepared for a series of rate hikes this year. But his cautious, yet steady and determined tone, in light of recent developments, which includes the war in Ukraine and spiking energy prices, was well received by traders. A few weeks ago, after inflation hit the highest level in 40 years, some had been speculating that the Fed might increase rates in mid-March by as much as 50 basis points. That sent yields sharply higher, but spooked stocks. Then when the war began, which sent energy prices even higher, some began speculating that the Fed might forego a rate hike in March altogether, and take a wait and see approach instead. That, along with a flight to safety, weighed on stocks again, but also on yields as well. So yesterday's clear message that he thought hiking rates by 25 basis points when the next FOMC meeting concludes on March 16th was the right call, provided the clarity the market was looking for. Of course, other members of the Fed have to vote on it. But knowing where Mr. Powell stands, given that he's consistently been in the majority, lifted both stocks and treasury yields. In addition to stocks and yields soaring (the S&P rose 1.86%, and the 10-year yield rose 9.26% at 1.8650), so did the price of crude oil. OPEC+ met yesterday, and they announced they would stick to their previous plans of only a gradual rise in output. They will literally only increase production by an extra 400,000 barrels per day in April. So not only is the increase negligible, it won't even begin for another 30 days. In the meantime, aside from the 60 million barrels of oil that the International Energy Agency (IEA) announced they would release from reserves on Tuesday (of which 30M barrels will come from the U.S. Strategic Petroleum Reserves (SPR) – which amounts to less than 2 days of U.S. consumption), there doesn't seem to be any relief coming for energy prices anytime soon. Brent Crude Oil rose $9.63 or 9.17% to close at $114.60. Natural Gas was also up, gaining 5.25% at $4.79. Today we'll get another look at the economy with the Challenger Job-Cut Report, Weekly Jobless Claims, the Productivity and Costs report, the PMI Composite Index, the ISM Services Index, and the Factory Orders report. Mr. Powell gives day two of his semiannual testimony, this time to the U.S. Senate Committee on Banking, Housing and Urban Affairs. And the world will be watching what happens at today's second round of talks between Russia and Ukraine. Their respective delegations are expected to meet on the border between Poland and Belarus where they'll discuss the possibility of a ceasefire. Meanwhile, Russia continues to shell Ukraine. But Ukraine has been valiantly fighting back. Should be a busy day today. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
Post a Comment
Post a Comment