While I expect we will continue to see elevated inflation numbers in the near term it seems clear to me that the trend for many inputs continues lower and with that so should overall inflation numbers as these lower prices make their way through to finished goods and services.
I expect the US Fed to maintain a tightening posture and we likely still see another 75-basis point increase in interest rates. Some are calling for a 100-basis point move like what the Bank of Canada did this past week. As I’ve said in the past the Fed will want to be sure they’ve stopped inflation dead in its tracks before they change course.
I’m encouraged by some of this data and think we may have the Fed in a position to reverse course before the end of the year or early 2023. This starts to build a stronger case for the bulls and the stock market’s actions this week indicates that maybe investors think the worst may be behind us. This week we witnessed 2 of the strongest inflation prints in the last 40 years and the markets basically shrugged it off and closed the week down small amounts. Remember, it’s a bullish sign when we get bad news, and the market does not go down….
Energy
We continue to keep a very close eye on energy. We saw more weakness this week which is good news for the inflation picture and the overall markets, however lower energy prices weigh down energy stocks. WTI dipped to 4.5-month lows and closed the week at $97.59 down from last Friday’s close of $104.90. Natural gas had a strong week closing at $7.02 up from $6.045. Gasoline closed lower at $3.20 vs $3.45 last week.
Most oil stocks had a very rough week. I’ve been making some very small trades on some of small producers hoping to catch some dips and bounces but haven’t been very successful. I’ll let the downtrend run its course and watch from the sidelines for now. I’m happy to hold my energy service stocks as I continue to believe they offer the best risk/reward right now in the sector as I do want to maintain some exposure as a bit of a hedge against supply shocks.
We saw another solid increase in drilling rigs this week, especially in Canada where we saw another 16 rigs in action. That’s up 11% on the week.
Life Sciences
The life science sector continues to get us excited. The XBI has been consolidating its strong recent moves off its bottom from June. The XBI closed down 2.4% for the week after gaining roughly 33% in the last month. |