Oil Prices Rally Amidst August's Mixed Performance

Oil prices have surged by nearly 25% since April

• Mixed August performance signals market uncertainty amid job data and inflation concerns.
• Oil prices surge, impacting gas costs and global inflation dynamics.
• Watch for political negotiations as fiscal year end approaches, affecting market stability and government funding.

August has drawn to a close with a mixed performance in the stock market, marking the end of a five-month winning streak. In this blog post, we'll delve into the key factors that shaped the market's performance during the month and what lies ahead as we enter September.

Throughout August, stocks exhibited a mixed performance, leaving investors pondering the future direction of the market. On the final trading day of the month, the S&P 500 saw a 0.2% decline, while the Nasdaq Composite managed to eke out a 0.1% gain. These fluctuations followed earlier losses in August, with the markets bottoming out Aug. 18 before embarking on a gradual upward trajectory.

A glimmer of hope

It's essential to consider the broader context when assessing the market's performance. Despite August's overall downturn, the recent upward trend offers a glimmer of hope. Market participants will be closely watching how September unfolds, especially considering today's mixed jobs report, which may have a significant impact on market momentum.

The August non-farm payrolls report delivered a surprise, with 187,000 new jobs created, surpassing the 170,000 forecast. However, this marks the third consecutive month with job creation below the 200,000 mark and it comes with a caveat. July's job figures were revised downward from 187,000 to 157,000, raising concerns about the job market's strength.

Additionally, the unemployment rate exceeded expectations, coming in at 3.8% compared to the forecasted 3.5%. The implications of these numbers on a potential September rate hike appear to be diminishing, with CME-reported odds standing at a mere 11%.

Inflation remains a central focus, with the Federal Reserve's preferred gauge, the Personal Consumption Expenditures (PCE) report, aligning with expectations. On a monthly basis, prices rose by 0.2%, while the year-over-year increase was 0.4%.

Chinese downturn could ease inflation pressure

The slowing Chinese economy might alleviate inflationary pressures. China is experiencing a downturn in both manufacturing and services sectors. This global economic factor may help counterbalance inflationary pressures, particularly in the oil market. Oil prices have surged by nearly 25% since April, currently trading at over $84 per barrel, resulting in higher gas prices at the pump, now matching last year's levels.

Several individual stocks made headlines last night and this morning. Lululemon (LULU) reported impressive earnings, surpassing expectations and raising their full-year guidance, leading to a 2% premarket surge. PC manufacturer Dell (DELL) enjoyed a 10% premarket increase after reporting strong earnings and an improved full-year forecast. Tesla (TSLA) unveiled a refreshed Model 3 and reduced prices on their high-end Models S and X, signaling a push for market share, albeit with no immediate impact on their stock price. On the other hand, Broadcom (AVGO) forecasted lower fourth-quarter revenue and saw a 4.5% premarket decline following earnings that marginally exceeded expectations.

Notably, market volatility, as measured by the VIX, has retreated from recent highs, now hovering around 13—well below historical averages. This suggests reduced anxiety among investors, despite looming challenges. Congress and the White House are set to negotiate new spending bills as the fiscal year nears its end, with the White House requesting a short-term funding measure to avert a potential government shutdown. This political uncertainty adds a layer of complexity to the market's outlook.

As we approach the Labor Day weekend, it's worth noting that trading volumes tend to dwindle after the first hour of trading. With yesterday's PCE report and today's jobs data fueling activity, investors should anticipate reduced trading as the weekend approaches. It's crucial to stick to your investing plans and long-term objectives amid these fluctuations.

In conclusion, August's mixed performance, coupled with economic data and global factors, has left the market in a state of uncertainty. As we transition into September, careful monitoring of economic indicators and geopolitical developments will be essential for investors navigating these dynamic market conditions. Enjoy the Labor Day weekend and stay focused on your investment goals.

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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