The Latest Market Commentary From Our Strategists

Main content

Daily Blog

Tuesday, September 17, 2019

Special Guest Blogger: Tim Kearney

Saturday’s drone attack on Saudi Arabian oil fields is the largest supply disruption in at least 40 years and affects some 60% of Saudi output. This is the fifth such attack on Saudi Arabia this year; if the attacks continue, they could impact global economic and political stability in addition to energy prices. Given the fires and extent of the attack, the magnitude of the rebuild is uncertain at present and will likely drive an upward bid to oil prices for the next few weeks at the least. The implications of the supply disruption can be broken down between oil exporters such as the United States, and importers such as Germany and China.

For the U.S., the supply disruption actually could provide some upside effects that might offset a slowing growth path. The U.S. has unused production capacity, which is likely to be put to use once it becomes clear that there is a new price floor. Also, as an energy exporter, U.S. growth should benefit from any improvement in the terms of trade, i.e., export/import prices.

Importantly, in the past the Federal Reserve generally has not responded to transitory supply shocks. Given the Fed’s preference for above-trend growth and low inflation, it is likely to stay on the easing path, meaning that it likely will cut the Fed funds rate by 25 basis points to help mitigate downside growth effects. The supply shock is likely to have a modest upside effect on inflation; given that inflation is below target, the Fed has a buffer there to utilize. Importantly, it can be argued that the rise in terms-of-trade is dollar-positive and the Fed might want to limit that impact. The key risk remains the impact on important oil importers such as Germany, France, China or India. Look for their authorities to respond to support their domestic growth rates.

Please follow oil price and intensity on page 61 of the Global Perspectives book.

Weekly Commentary & Statistics

Monday, September 16, 2019

U.S. stocks rose for a third consecutive week on thawing U.S.-China trade tensions and strong U.S. consumer spending data.

Quarterly Commentary & Outlook

July 2019

We unabashedly tout our 2019 theme, “The Storm before the Calm,” as it accurately unfolded in the markets in the first half. The storm in December was followed by a calm from January through April, which sent markets to near record highs.

  • In the first half of 2019 our market theme, “The Storm before the Calm,” has unfolded as we predicted
  • We originally anticipated a rising rate environment, however, this outlook has changed and is allowing for a rebound in fundamentals
  • Markets have been soaring, with the S&P 500 posting its best half-year gain since 1997
  • Corporate earnings may be the best indicator to follow as they continue to beat all-time highs
  • An apt metaphor for investors may be to take advantage of the blowing wind and go “full sail”

Footer content