It has been a quiet two weeks as we pass the 4th of July holiday and get into the dog days of summer. Next week we will start earnings season and get a look at how companies fared in Q2 with elevated oil prices. Energy costs will now be a major topic with the Iranian conflict turning kinetic and that means shipping traffic in the Strait of Hormuz will remain curtailed (now at roughly 30% of pre-war).
Oil Prices Stay Orderly
The good news is that oil prices could have spiked much higher on the news but closed around $71 on the week. On Monday, OPEC is holding a meeting and we will see how much more oil they can pump to help supply the global economy. For now, this scenario is not a big surprise as Iranian leadership looks fractured and unreliable so I expect it will be difficult to have a lasting agreement with Iran. The rest of the world will have to pump harder for the foreseeable future. Who will be the winners?
In the above chart, oil was deep in oversold territory so a bounce here was overdue. I think it is possible we see $80 before we see lower prices but I think the super-spike scenario ($150 crude) is off the table as producers have had time to adjust their output. The one item to watch that is that Russia and Ukraine keep bombing each other’s oil/refining infrastructures so that could be a growing issue for global supply.
Stocks Are Consolidating
As you can see below, the S&P has been in a range for most of the past six weeks. This looks to be a consolidation range that was needed to work off an overbought condition as you can see in the RSI at the bottom of the chart. If correct, we should see the uptrend continue and perhaps Q2 earnings reports will be the catalyst.
10Yr Yields
This is a chart of the 10Yr Treasury yield and the gist is that a pattern may be completing in the coming months which would mean a move above 5%. Not a shock given all the inflation in the pipeline and the newest breakdown with Iran means it will be a long time before inflation will be in the rear-view mirror.
Next week should get busy as we have consumer and producer inflation reports and earnings season kick-off. Stay cool!
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President, Kisco Capital
