Market review 24.09.07

The opposite extremes: oil and bonds

Hello everyone,

I want to focus on oil and bonds in today's report, as they tell an important story.

In 2022, interest rates climbed to multi-decade highs to fight inflation. Crude oil peaked that year, along with many other key commodities.

Interest rates have remained elevated for the past 2-years to ensure inflation is fully tamed. With a lag, this has come at the cost of economic growth slowing. Energy and consumer discretionary have been the weakest equity sectors for months, but more sectors are becoming weak.

Countries like Canada have begun cutting rates since June, and the US is expected to start later this month. Like a traditional cutting cycle, we can see equities and commodities decline as rates ease. We’ve already been seeing a negative stock-bond correlation since July.

The Fed’s fight against inflation could cause oil’s 2-year bear market to end with a flush. This likely marks a good buying opportunity based on positioning, valuations, and major support levels. This is what I want to emphasize in today’s report.

Let’s begin.

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