Stocks and rotation
The equal-weight S&P 500 (SPX) is beating the market-cap-weighted index because technology is pulling the market down this morning. For today, resistance on the upside sits at 7810. If price breaks down, first support is 7760, then 7740. The goal is to recover back to the 7800 level after a decent bounce off the overnight futures lows.
A rotation is underway. Utilities are still getting a decent bid. Financials are outperforming, but only because of Berkshire Hathaway (BRK), which is on a six-day winning streak - the bigger banks are pulling back today. Volatility stays relatively low even with energy prices and yields rising; that stress has not fed into equity volatility yet.
Crude's climb
Two things are pushing WTI crude higher. On the technical side, several support levels lined up and were mostly hit yesterday: the 50-day moving average, the support of an ascending channel, and the volume-weighted average price from February, all at the same spot. Buyers stepped in with a reactionary move up. The next major resistance is $94.25, the 20-day moving average.
On the news side, there were two strikes on Saudi airports overnight. President Trump said he is not looking for a deal with Iran right now. A report says the US is looking at military preparations to strike Iran even before the midterm elections, which most energy traders did not expect. Russian refineries were also hit overnight. The strikes keep coming and the disruption to energy logistics keeps building for now.
Inflation read-through
The byproducts of crude will be the main driver of inflation going forward. Diesel prices are up about 4.5% this morning and gasoline is up around 3 to 3.5%. Even so, prices are still below the highs seen about a month and a half to two months ago.
Rates and the Fed
Yesterday's 10-year note auction drew solid demand, and buyers are showing up at these levels, though yields did a round trip back to where they started. The crude rebound is putting some upward pressure on yields.
The FOMC minutes are seen as stale because Fed officials have already laid out their thinking. Christopher Waller, speaking after the closing bell, leaned toward needing more hikes but appeared to open the door to an October pause, which the market is already pricing in.
Today's data
Wholesale inventories rose 0.5% month over month, down from the prior 0.7% print, a small revision lower. Rising inventory levels are deflationary for the market. If inventories start drawing down, retailers could push prices higher again and refuel the inflation story. This is only second- or third-tier data and shows some stabilization from the prior month.
Unemployment claims came in at 197,000 last week against an expected 200,000, and the four-week moving average keeps falling. The high-frequency jobs picture still looks good, and the claims trend has been steady over the last two months, so there are no big headline movers in today's data.
Still ahead: the CPI report, plus remarks from Kashkari and Musalem today.
