Oil prices surge to two-week winning streak as Iran supply fears grip markets
Yesterday’s rally continues. AI concerns are abating, and global interest rates are on the rise.
All the major indexes opened to solid gains, with tech in the lead. The only weak sector is consumer staples. The poster child for AI concerns, Oracle (ORCL) is up 7%, NVIDIA +3%. The Magnificent 7 is only up 0.2% as the rest of the market catches up: YTD, the NASDAQ is up 20.1% and the Magnificent 7 is +23.1%. While NVIDIA is up 32.9% (down 15.7% from its November high), the semiconductor sector is up 46.8%. The market gains are broadening, especially seen in small caps, a reflection of confidence in the general economy, which is up 7.6% in the last month, compared to +2.8% for the S&P.
The Japanese move to higher yields is problematic, as its artificially low yields have been used as a source of funds in "carry trades" to the tune of trillions of dollars, a strategy that may cause problems as it becomes more expensive. Higher long-term yields typically reflect inflation expectations, but this time may also reflect the record-high global debt levels, requiring higher yields to compete for refinancing demands.
In economic news, home sales continue to be weak due to high prices and high mortgage rates, pricing out first-time buyers. The Michigan consumer surveys showed slightly higher inflation expectations and slightly lower sentiment. Christmas sales appear to be only modestly higher, as the K-shaped economy has left the large group of weaker consumers stretched.
On the commodity front, precious metals are higher, with silver hitting yet another new all-time high, now up 31% in a month. Crude oil is up 0.5% to $56.30/bbl, down 4.8% in a month. Natural gas is up 2% trying to get back to $4/mcf, down 12.6% in a month. Gasoline is flat today, down 12% in a month. Crypto is up slightly, with Bitcoin at $88.2K after almost hitting $85K overnight, down 2.2% in a month.
Of note, due to today being a quadruple witching day (expiration of stock index options, single stock options, stock index futures, and options on stock index futures), today is expected to set a new record of shares traded, exceeding 7 trillion. This may bring some interesting volatility near the close.
The consensus for a strong economy in 2026 continues to rise. Lower energy price expectations should help hold inflation in check. The trend remains positive, and a Santa Claus rally into the year-end won’t surprise anyone.