Oil and interest rates were the primary factors moving markets this week. Oil remains above $100 per barrel this morning and has risen almost 20% in the past month.
https://tradingeconomics.com/commodity/crude-oil
Adding to the impacts of higher current oil prices is the uncertainty going forward. Many analysts, such as those at JP Morgan, are giving up on predicting possible outcomes for the Iran conflict.
“For the first time since the start of the Iran conflict, we don’t have a baseline view,” said Natasha Kaneva, head of global commodities strategy at JPMorgan, in a note published Thursday. “We simply don’t know how to model the endgame.”
https://finance.yahoo.com/energy/articles/jpmorgan-drops-iran-war-oil-115416515.html
However, higher oil prices don’t affect Americans at the gas pump in the same way they once did. The cost of gasoline as a percentage of disposable income is near historic lows as Americans spend an average of 2.5% of their income at the pump, down from over 6% in the 1970s and 1980s. The real concern is what higher gas prices do to the cost of everything else.
As higher energy prices ripple through the economy, transportation costs are likely to push inflation higher. This caused the Fed to raise interest rates this week for the first time since 2023, with another rate hike expected before yearend. As I mentioned last week, the Fed believes the US economy is strong enough to withstand higher interest rates to fight inflation and Fed Chair Kevin Warsh said exactly that this week:
“We now have data broadly defined that says the economy has indeed strengthened,” Fed Chairman Kevin Warsh said in a press conference following the meeting. “Underlying growth is higher. Inflation is the problem. Stable prices have been the problem for, now, more than five and a half years.
So far for September, the US total stock market index is flat (pink), but the tech-heavy Nasdaq (green) is up over 1% while the Dow Jones Industrial Average (blue) is down nearly 2%. Bonds (red) are down about 1%.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
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