Broad Market Picture
The S&P 500 has consolidated over the past three months, up only about 1.4% since early June, with a small breakout to the upside. A pullback about a month to a month and a half ago brought one of the healthiest rotations seen - money moving from higher-beta, offensive sectors into defensive sectors, then consolidating again.
On the E-Mini S&P 500 one-year daily chart, price is flirting with the 20-day simple moving average and sits above the anchored volume-weighted average price (the orange line), which acts as support at 7,400. Hold that level and the market keeps making higher highs and higher lows, with the trend still up.
Analysts warn September tends to be volatile. Known risks: CPI and PPI reports, the Fed meeting, concerns about rate hikes, and geopolitical fears. Last week's selloff hit industrials (fitting, given a possible global slowdown in physical goods) and materials. Communication services, a heavily weighted sector, looks ready to break out to the upside, along with technology. The market is playing key support levels and looking for a breakout and a new narrative, hoping for calmer tensions in the Iran conflict and between Russia and Ukraine. Even a small September pullback keeps the market primed to move higher if the volume-weighted average price holds.
Oil Prices
Brent crude trades above $98 a barrel; WTI approaches $94. This is a tough market. Fundamental traders ("barrel counters") point to a shortage in byproducts - diesel and aviation fuel - pushing those prices up. Retail diesel hit all-time highs last week.
On a three-year weekly chart, WTI made a wedge pattern and broke out, with the breakout level around $95. Heating oil is testing key resistance (heating oil and diesel are used interchangeably here). Three-year seasonality shows prices rising into this period. Distillate and diesel inventories have sat at very low levels for three to four years, so the effects of that tightness are now showing - not only from the Iran conflict. Winter adds pressure: the Northeast, especially Boston, still uses heating oil for both heating and some electricity, adding demand.
US refiner utilization sits at about 97.3%, basically tapped out. Around September 13th, refiners start pulling back for two to three weeks of maintenance, which could push prices higher.
The bearish side: on the crude chart, the $93 to $105 range is where the administration tries to talk the market down with good news or rumors. Bulls should note that when the 10-year yield runs 4.7% to 4.8% and crude trades $90 to $95, the administration gets antsy. Crude has to clear this level to build real enthusiasm. Expect continued volatility. One more tool the administration could use to cap diesel prices: announcing, or hinting at, curbs on diesel exports. That would help in the near term ahead of elections but could fracture global energy markets. Setup is technically bullish, but the administration trading against the move makes it hard for bulls at current levels.
US-Canada Tariffs
Canada's roughly $27.6 billion in retaliatory tariffs take effect today, running 15% to 50% on hundreds of goods - dairy, agricultural equipment, paper, household appliances. This follows trade talks that broke down close to a month ago. Canada is a major trading ally. The US imports about 6.2 million barrels per day from Canada, the reason the US is energy independent in medium sour and heavy sour crude. Canada has levers it could pull.
These measures are likely already priced into the market. The concern is escalation, especially in winter, since Canada supplies a large amount of electricity to the Northeast, and crude flows from Alberta into the US cover almost half of daily distillate consumption. That is a big deal and something to avoid, but not a major market mover given other events of the last 48 hours.
ASML and the AI Trade
TSMC (TSM) and ASML (ASML) announced a joint push to move the industry from current 6-inch to larger 12-inch photomasks, or high-NA EUV lithography. The goal: make chip production more efficient, lower chip costs, and boost fab productivity. TSMC plans to double down and use these new tools as soon as 2030, scaling up.
This benefits equipment makers and fabrication operators like TSMC (TSM) and possibly Intel (INTC), if Intel says it will use the technology. Longer term it could hurt players like AMD (AMD) or Nvidia (NVDA), because greater scale brings more product to market, which can lower prices while still filling near-term demand.
The move is a positive tailwind for the AI trade, which has been more stagnant lately. Along with OpenAI's AGI claims over the weekend, news like this could give the AI trade a boost.
Levels to Watch
For the S&P 500: upside 7,730, downside 7,640. There is more call-side skew to start the morning, so despite a pullback the market leans slightly more bullish than bearish. The VIX hit a record low while trading near all-time highs - at a 14 to 15 level, hedging positions is cheaper. The market stays more bulled up, but any news headline can reverse the trend.
