This Is Where I Think We Are Headed Into Year-End
Markets are confusing. People can interpret things in many different ways, but as I always advise readers, price is the only truth sayer. With the conclusion of the Fed meeting yesterday, people were understandably confused. On one end, it appears that the communique pointed to a potentially slower pace of rate hikes on the horizon. Conversely, the terminal interest rate is expected to be higher than before.
The whipsaw reaction in the market saw everything sell off. And while I am not one to reach conclusions on an intraday move like yesterday, I am confident that many of the market participants pondered what this meant for all of us going into year-end.
The way I see it is three-fold:
Macro markets will remain turbulent. It is doubtful we have an event before year-end that will somehow result in the US Dollar to spike upward or downward. This, in turn, will result in dollar-sensitive commodities like copper to trade rangebound without giving us any type of signal that we are out of the woods just yet.
Oil markets will be somewhat supported into year-end with the end of SPR release coming, the OPEC+ production cut, and the incoming Russian crude oil embargo. This combined with the natural deficit we are already seeing in the market, despite worries over global oil demand, should continue to propel us higher.
Energy stocks are the best-performing sector in the market. Understandably so, money managers that are underperforming into year-end will have to chase a bit, so we should see larger cap names outperform smaller caps into year-end. In addition, tax-loss selling will drive more selling in tech names, while those very same investors allocate the capital to energy. The reversal of what we witnessed from 2017-2020 should help propel energy to continue to outperform tech.