SPX Equal Weight Outperforms, Crude's Climb & Treasury Yield Headwinds Linger

Sam (0:00)

Stay pretty self-explanatory as we continue to do this dance with oil and yields and stocks. So let's get out to Kevin Green, who joins me now for the market setup. See how he's seeing things this morning. Good morning, KG. Just walk us through the levels you're watching.

Kevin Green (0:15)

Morning, Sam. Well, we are actually seeing maybe some buyers kind of stepping in here. Actually, the equal weight S&P 500 is outperforming the market cap weighted index because technology is pulling us to the downside here a little bit this morning. But if you're kind of looking at the levels and looking to the upside, 78.10, as your kind of major area of resistance for today's market, and we get a further breakdown to the downside. First area support 77.6 and then below that 77.40. But you talked about this rotation happening in the market, you know, utilities still catching a pretty decent bid. Financials are actually outperforming and the only reason why is because of Berkshire Hathaway. It's on a six-day winning streak right now as you are still seeing some of the bigger banks actually pulling back for today. But that's an interesting kind of perspective when it comes to the financials in general. And you still see volatility actually still relatively low here, just given the environment that we have with energy prices moving higher, yields moving higher as well. It's just not being translated into equity vault as of yet. So we're all pretty decent day, pretty decent recovery from the futures session where we did mark some pretty decent lows here. And let's see if we're going to be able to recover more for the equity session here and hopefully get back to that 7800 level.

Sam (1:28)

Yeah, I mean, obviously we saw that solid demand. We were talking about that yesterday for the 10-year note auction. There seems to be some buyers at these levels, but obviously we did a round trip looking at the levels that we were waking up to this morning. I'm just wondering what's going on with crude. I mean, what's the move behind the upside here? I mean, is this something to do with the Houthis launching more attacks here on infrastructure?

Kevin Green (1:54)

Yes, definitely. I think there's actually two components to the energy trade this morning, especially if you're looking at WTI. First and foremost, from a technical standpoint, we actually had a confluence of support levels that were actually, for the most part, hit yesterday. We had the 50-day moving average. We also had this upward ascending channel. The support level was also an area of confluence. And then if we had the volume weighted average price from February was also sitting at the same level as the 50-day moving average. So some buyers did step in. A little bit of a reactionary move to the upside here. You're kind of looking at it from a technical standpoint that $94.25 could be your next major area of resistance. That's the 20-day moving average. From a new standpoint, we had two strikes on Saudi airports overnight. We also have President Trump saying that he's not really looking for a deal with Iran at this point in time. There's also a report that they are looking at military preparations, the US is, to strike Iran even before the midterm elections, which a lot of energy chariots did not have on their radar. And then we also have some Russian refineries getting hit overnight as well. So the strikes continue to happen. The disruption when it comes to logistics within the energy patch continues to accelerate, at least for now.

And we are seeing a little bit of pressure when it comes to yields because of this rebound. But we'll see how this all kind of plays out here. I think you have to still look at the byproducts. That's going to be the main driver of inflation moving forward. So you have diesel prices moving aggressively higher this morning as well, up about four and a half percent. And you have gasoline that's up around three percent, three and a half percent last time that I checked here. So a lot of pressure on that front. But we're still not back to those highs that we saw about a month and a half ago, two months ago.

Sam (3:33)

Yeah, for sure.

Obviously, keeping an eye on yields as we get more information today. We've got a bit of data. I mean, the FOMC minutes, I think the view yesterday was that that was pretty stale at that point that we got it because obviously we've been hearing from various Fed officials as to how they're thinking. We did get Christopher Waller in the afternoon post the closing bell, who seems to be inclined that more hikes are needed, although seemingly opening the door to an October pause, which is kind of what the market is pricing in anyway. But what about the data this morning? I mean, claims continues to, I guess, support this Fed's narrative of the labor market is hanging in there. We'll focus on inflation. We've got some wholesale inventories hitting the wires just now. What are we seeing there?