Market Update: February 10, 2023

Welcome to the Weekly Market Update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth, and here’s what happened in the market this week.

 

We’ve had a small pullback in stocks this week as the rally pushed the market into overbought levels. Thus far, the market has remained above a key support line but looks like it will break through today, Friday February the 10th.

In the news this week, following the great Balloon incident of 2023, US officials look to tighten technology export controls to China. Borrowing costs rise for the Federal government as short-term debt must be rolled over at higher interest rates. And Russia has cut oil production, sending oil prices higher this morning.

With that in mind, lets take a look at the journey oil has been on for the last few years. In recent months, oil prices have found a normalized trading patter between $70 and $80 a barrel. This follows a peak in oil prices of around $120 a barrel last summer and oil prices have fallen ever since. Looking back even further, the big disruption was definitely COVID and the subsequent shutdowns that sent oil demand lower causing oil prices to fall into negative territory for the first time ever. After restoration of the normal economy, oil consumption started to rise again causing the slow build up to the inflationary year of 2022.

The oil markets are a delicate balance of traditional supply and demand. Because of the lockdowns in 2020, the steady state consumption curve collapsed causing a massive gap between production of oil and consumption. This gap produced excess inventories that eventually exhausted all buyers of crude oil and sent the prices negative. Eventually, consumption was restored, causing a second gap only this time consumption overshot production. This subsequently caused a rapid drawdown of inventories forcing crude oil prices higher.

Here’s another way of looking at it. Beginning in early 2020, once the economy shutdown, crude oil inventories spiked to the highest levels ever seen. This caused oil prices to collapse. For the next year, oil production was dramatically reduced and consumption largely used up existing inventories causing those levels to fall to some of the lowest levels ever seen. This led to the oil price spike to $120 a barrel. From here on out, it looks like the production/consumption equilibrium is restored so hopefully, oil prices should normalize from here on out.

For more information on this topic or a variety of other topics including market updates, financial planning, and wealth management please visit our vlog at signaturewmg.com/vlog. If you like our content, feel free to share it with friends and family. And don’t forget to smash that subscribe button!

Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved February 10, 2023, from FactSet Database.

2.FactSet Research Systems. (n.d.). WTI intermediate spot prices (Interactive Charts). Retrieved February 10, 2023, from FactSet Database.

3.US Energy Information Administration. Short term Energy Outlook. Released February 7, 2023. Retrieved from https://www.eia.gov/outlooks/steo/data.php?type=figures

Disclosures:

Signature Wealth Management Group is registered as an investment adviser with the SEC. Signature Wealth only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The federal funds rate refers to the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. The use of words such as “will”, “may”, “could”, “should”, and “would”, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Information is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein.

The S&P U.S. Style Indices measure the performance of U.S. equities fully or partially categorized as either growth or value stocks, as determined by Style Scores for each security. The Style series is weighted by float-adjusted market capitalization (FMC), and the Pure Style index series is weighted by Style Score subject to the rules described in Index Construction.

All information presented prior to an index’s Launch Date is hypothetical (back-tested), not actual performance. The Index returns shown do not represent the results of actual trading of investable assets/securities. S&P Dow Jones Indices LLC maintains the Index and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Please refer to the methodology paper for the Index, available at www.spdji.com for more details about the index, including the manner in which it is rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations.