Oil Price Surge and China's Woes Shake Stock Markets Amid Inflation Fears

Oil price surge impacts stocks amid inflation concerns while China's weakness and tech regulation add uncertainty

• Oil price surge impacts stocks amid inflation concerns while China's weakness and tech regulation add uncertainty.
• Rising consumer debt and interest rates raise financial stability concerns; individual stocks respond to changes.
• Stay vigilant amidst market uncertainties. The S&P 500 is in uncertain territory, so watch for potential support levels.

The start of the holiday-shortened week brought a flurry of developments in the financial markets. Here's a detailed look at the key factors influencing the stock market's performance.

Stocks faced headwinds as crude oil prices experienced a significant jump, causing the S&P 500 to lose 0.4%, with the Nasdaq Composite down by 0.1%. The surge in oil prices raises concerns, especially in an environment in which inflation was gradually stabilizing.

Russia and Saudi Arabia's joint announcement of oil production cuts through the end of the year caught many analysts off guard. Contrary to expectations of a one-month extension, the longer commitment sent crude oil prices soaring by 20% in the past three months, reaching levels last seen in November of the previous year. These rising prices are not only affecting consumers at the gas pump, with the average price now at $3.80 per gallon, but also impacting airlines grappling with higher jet fuel costs.

China's economic woes continue to cast a shadow on global markets. Reports indicate that services output in China hit an eight-month low, following last week's news of a fifth-consecutive month of manufacturing output contraction. The weakening Chinese economy has led to a government mandate banning state employees from using foreign-branded phones like iPhones in a bid to boost domestic brands. This move could pose a significant challenge for Apple (AAPL), given that China currently accounts for approximately 19% of its overall revenue.

In Europe, the newly enacted Digital Markets Act is set to regulate companies considered tech gatekeepers, with the aim of leveling the playing field for smaller competitors. Six major American companies, including Alphabet, Amazon (AMZN), Apple, Meta (META), and Microsoft (MSFT), were named on the initial list. This legislation could compel firms like Apple and Microsoft to offer alternatives to iMessage and Bing, challenging their dominance in messaging and search engines.

The United States is witnessing a significant increase in consumer debt, breaching the $1 trillion mark in Q2—a 16% jump from the previous year. While consumer spending remains robust, the cessation of most COVID-19 stimulus programs has raised concerns about income levels keeping pace with spending. The surge in debt is occurring at a time when interest rates are on the rise, leading to an uptick in delinquencies, reminiscent of levels last seen in 2019.

In individual stock news, Roku (ROKU) saw a 13% premarket surge following the announcement of a 10% reduction in its workforce. Chip designer Arm Ltd. is gearing up for an IPO targeting a valuation exceeding $50 billion, potentially arriving next week with shares priced between $47 and $51. Additionally, Airbnb (ABNB) and Blackstone (BX) are set to join the S&P 500 on Sept. 18, replacing Lincoln National Corp. (LNC) and Newell Brands Inc. (NWL).

As the market navigates these dynamic conditions, it's worth noting that chartists perceive the S&P 500 as being in uncertain territory. In the event of market weakness, the consensus opinion points to a potential support level around 4460. Amidst these fluctuations, it's crucial for investors to adhere to their investment plans and long-term objectives.

In conclusion, the financial markets are facing a blend of global economic factors, regulatory changes, and individual corporate developments that continue to shape their direction. As the landscape evolves, staying informed and maintaining a steady course remains key to successful investing.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan

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