October is off to a great start for investors as the first week generated new highs for both the S&P 500 and Nasdaq 100. While this month is typically good for markets, with the S&P 500 returning an average of 1.25% since 1980, investors want to know if oil prices will continue to remain high and what an upcoming earnings season means for the market.
As we mentioned in our last update, the market is still being constrained by energy supply shocks as conflict in the Middle East persists. Looking at the spot price for West Texas crude oil, the price per barrel is sitting on its 50-day moving average and the RSI is hovering around 50 as investors digest an uncertain news cycle. Just as energy shipments through the Strait of Hormuz seemed to be rising to pre-war levels, a Wednesday night attack on an oil tanker off the coast of Qatar and news of a potential pre-midterm strike on Iran pushed prices up and cast doubt on the potential for normalizing the energy markets.
Domestic factors are also pushing up oil prices. As Hurricane Isaias moves up the Gulf Coast, a quarter of oil production in the region has been suspended. While the impact on the market may be temporary, it's no less factoring into investor decision-making. It may also be the case that energy prices remain higher for much longer. This is largely because, according to analysts, reserves of oil around the world remain depleted and will take time to recover. Going into fall and winter, regions like Europe will be importing much more than usual, maintaining pressure on global supply chains.
The upcoming earnings season has the potential to shake markets up as well. Over the summer, earnings produced mixed results with many stocks dropping even as they reported better-than-expected results. One explanation for this could come from higher yields, with investors taking profits and moving into bonds with higher return. As yields have now reached a 20-year high and seem to be reversing, we could see money start to roll back into the market. Additionally, with around 50% of stocks in the S&P 500 currently trading below their 200-day moving averages, a good earnings season could lift stocks.
As we discussed before, the market tends to underperform in September, which can make the rest of fall feel like a breath of fresh air. We remain focused on technical indicators of performance that take full advantage of a more active trading season and will be looking to see how energy markets and corporate earnings create opportunities for investors.
This material is for informational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results.
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