Investors’, Traders’ and the Fed – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Stocks finished last week with robust swagger, as the tech driven Nasdaq Composite favorites posted some surprise earnings results, amid some massive announced layoffs. The market came to life on Monday as stocks showed optimism, as all indices were stronger. The Dow Jones Industrial Average was up 259 points or 1.2%, with the S&P 500 edging up 47 points. The tech heavy Nasdaq sprinted up 2% or 223 points, giving a strong nudge to all the indices. Many of the of the high tech ‘favorites’ are setting the tone as we start 2023, as the Nasdaq Composite is displaying ‘Bull’ characteristics. This year the indexes are all positive, with 8.6% the Dow Jones up 8.1%, the S7P 500 a bit behind at 4.7% and the popular tech exchange up with a year to date gain of 897 points. The usually forgotten Russell 2000, made up of smaller value equities, has also demonstrated positive movement, up 7.4% or 1219 points. Heading towards the week’s end, Tuesday, stocks stumbled, as investors and traders were digesting all the ‘new news’ attempting to find some positives. As announced by several tech companies, many massive layoffs are taking place. Wednesday, scattered earnings reports dulled trading as indices struggled to stay even at the finish. Much investor apprehension is building in anticipation of Apple’s quarterly release next week. A short-lived rally opened with the market on Thursday as investors’ and traders’ were in a buying mood that disappeared late afternoon. All three indices ended a bit positive, but cautious as to the expected Fed’s meeting and the release of the next ‘bump’ and the amount of the percentage rate increase. Economists and analysts alike pretty much are in agreement that a half point increase is coming.

The Hunt For Big Oil… Offshore drilling has ‘exploded’ nearly every available offshore platform working under lease agreements with major oil companies.. Of the available offshore floating platforms, numbering 600, over 90% or 540 are presently contracted by large name oil companies, according to Westwood Global Energy Group. Five years ago that active number was 325 rigs. Three deep water drilling ships, (no stable platform is needed) the pinnacle of technology, and costing $900,000,000 to $1,200.000.000, are in high demand. These state of the art drilling ships cost nearly $100,000,000 just to activate and prepare for drilling. These behemoth ship platforms are leased to the largest oil companies at rates costing $400,000 a day, with increases coming to $500.000 a day. Drilling activity is scattered around the world, focusing major activity in the Gulf of Mexico, Northern coast of South America down to Brazil, the North Sea and the Middle and far East. The top five or six oil companies pretty much can afford the best in drilling rig ships. These huge ships, 272 yards long, 46 yards wide, with a crew of 220 men, are positioned in deep waters for several months at a time. These ultramodern ships can drill in water 12,000 feet deep, with the ability to drill down 40,000 feet in search of oil. “Over the past year and a half, everyone started drilling again off shore, and they want to use the most efficient rigs and all of a sudden, bam!” says Noble Chief Executive Robert Eifler. “After eight years we basically have full utilization of a high-end drillship fleet.” Referring to reactive costs (with two ‘high-end’ drillships in mothballs) Mr. Noble says “We would be very conservative in considering reactivation.”

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RUMBLINGS ON THE STREET

Ross Mayfield, investment strategist at Baird, WSJ “The equity market is trying to grasp onto signs the Fed might decelerate and end their policy of outsized rate hikes,” said Mr.Mayfield

Kiran Ganesh, a multi asset strategist at UBS, WSJ “It’s been a strong start to the year for bank stocks, supported by a combination of higher interest rates and the economic contraction being not as severe as expected, that’s the goldilocks scenario for banks.”

James Bullard, St. Louis Federal Reserve President, WSJ “We want to err on the tighter side to make sure we get the disinflationary process to take hold in the economy and push inflation back to the 2% target,” he said.

Sam Millente, fixed income strategist for Commonwealth Financial Network, WSJ “The slowdown in demand and slowing producer inflation toward year-end is a positive sign that the Fed’s more restrictive policy is having a real impact in combating inflation.”

Thane Gustafson, Professor at Georgetown University, and historian of energy in Russia, WSJ “Because of sanctions, the Russian economy becomes even more dependent on energy exports. And when those themselves decline, the Russian economy’s ability to invest those…and its ability to modernize its legacy infrastructure (go) down.”