Stock Futures Rebound While Oil Prices Drop With Concerning Speed

Mixed investor sentiment is sending unusual messages through the market Wednesday morning. On the one hand, stock futures are up, with outlooks especially rosy for tech companies. On the other hand, the oil industry is struggling, with the price of crude oil dropping precipitously overnight.

Stock futures are on the upswing Wednesday morning as investors relax regarding global shipping and demand. The volatile holiday shopping season kicked off this week with a sharp decline in stock futures. Some investors fear that the worldwide shipping crisis could continue to cause bottlenecks for consumer goods, potentially depressing fourth-quarter spending.

These lingering concerns about global supply comingled with remarks from Federal Reserve Chair Jerome Powell on Tuesday to spark a sell-off. Powell’s statement suggested that the Fed’s bond-buying program could end sooner than expected. Even with these pressures, investor sentiment is generally optimistic, with tech companies like Apple and Microsoft posting impressive revenue numbers.

Fed Tapering Bond Program

Federal Reserve

“Chairman Powell’s commentary course-corrected the view on inflation and the potential need for quicker policy adjustment,” investment strategist Charlie Ripley writes in an email, per Yahoo Finance. “The reality is hotter inflation coupled with a strong economic backdrop could end the Fed’s bond-buying program as early as the first quarter of next year.

“Ultimately, the transitory view on inflation has officially come to an end as Powell’s comments reinforced the notion that elevated prices are likely to persist well into next year,” Ripley continues. “With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory.”

The sooner the Fed taper starts, the less liquid capital investors can expect to see moving through the economy. Since March of 2020, the Fed’s loose monetary policy has kept the wheels of commerce greased. Large capital injections each month helped the US economy stay afloat even during the height of the downturn in production and spending last year.

Inflation Is Hotter Than Expected

Stack of Money

In recent remarks, Chairman Powell stated that he plans to stop using the term “transitory” to refer to the US’s record-breaking pace of inflation over the past year. Since the start of 2021, the US has seen inflation hit its highest rate since the early 90s. This monetary devaluation has spooked investors and pushed consumer prices to record-breaking highs.

Research indicates that American shoppers haven’t been deterred by high prices. The glum economic outlook in 2020 pushed many consumers to shore up their savings accounts. Stimulus checks from the federal government also helped bulk up savings going into 2021, allowing many families to absorb the price hikes throughout the past year.

Customers leaning into the new high prices historically causes inflation to heat up. Manufacturers are now factoring in higher production and shipping costs due to the global bottleneck on shipping capacity. As such, higher prices are likely to be the new norm for customers.

There is some relief on the way for American shoppers, though. Gas prices might fall back to more manageable levels soon.

Gas Sell-Off

Barrels of Oil

The oil industry saw a bizarre price free-fall overnight going into Wednesday. Market analysts believe the massive sell-off is due to anxiety surrounding global demand and uncertainty about the global medical situation. “We estimate based on our pricing model, that the market has now priced in a mammoth c.7 mb/d [millions of barrels per day] negative demand hit over the next three months, with no offsetting OPEC+ response,” writes Goldman Sachs oil analyst Damien Courvalin.

Courvalin notes that this sudden drop in demand isn’t just unprecedented, it’s comical. The price projection essentially assumes that no planes will fly for three months, or that consumer demand will be half as low as it was in the second quarter of 2020. Both of these predictions seem ridiculous, causing an overcorrection to the spiking oil prices of the last two months.

As of Wednesday, crude oil prices have dropped 23% from their high last month. Shares of BP are down 9.8% Wednesday morning, while Exxon’s stock prices have fallen 7.2%. “We view the move lower in prices as excessive but understandable in the context of low year-end liquidity and risk appetite,” Courvalin writes.

Stock Futures Rebound Wednesday

Despite the uncertainty in the oil industry, the stock market generally looked more optimistic Wednesday morning. As of Wednesday morning, the S&P 500 is still up 22% through 2021. The Dow index saw a monthly drop of 3.7%, owing to investor uncertainty surrounding inflation and demand. However, the Nasdaq index posted modest gains, closing 0.3% higher in November than in October.

Tech investors enjoyed some of the sharpest stock increases Wednesday morning. Apple’s stock price is up over 1% this morning due to impressive sales for the new iPhone 13. Likewise, Microsoft is up 1.5%, bolstered by the successful launch of the Windows 11 operating system.

Electric vehicle manufacturers also remain popular among investors. Strong delivery results have pushed Tesla shares up over a percentage point Wednesday. Two of Tesla’s upstart rivals, Li Auto and Xpeng Motors, reported deliveries on Wednesday, sparking sharp increases in their share prices. The bottom line is simple: investing in the tech sector has paid off in 2021.

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