Oil prices and 2 other things to watch in the stock market next week

Posted: 25 March 2022 6:53 pm
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Oil is back above $100 a barrel and the idea of a gas rebate is being floated. Also: A recession is looming and several notable companies report earnings.

The major indexes continued their upward push this week and ended in the green for the second week in a row.
Here’s what happened in the market this week and three things to watch next week that could affect your stocks.

Markets record second-straight week of positive returns

The tech-heavy Nasdaq Composite had the strongest week of the three major indexes, climbing 2.2% during the week.
The S&P 500 rose 1.8%, while the Dow Jones Industrial Average (DJIA) gained about a half-percent.
Investors have been wondering just where the heck the bottom is for tech stocks, which have been selling off sharply over the past four months. The Nasdaq has been down as much as 23% since its November peak.
The Federal Reserve last week announced its first rate hike since 2018 and the markets responded positively. The Nasdaq has climbed 13% since the rate hike announcement, while the S&P 500 and DJIA have risen 8% and 5%, respectively. Whether this is the bottom of the selloff remains to be seen.
Here’s what to watch next week:

1. Oil prices back on the rise

After dropping below the $100 mark early last week and giving consumers a glimpse of hope that prices at the pump could soon fall, oil prices have regained their bullish momentum. West Texas Intermediate (WTI) climbed to $114.93 on Wednesday, while Brent Crude rose to $121.60.
Oil prices fell briefly Friday morning after reports emerged that European Union (EU) leaders were holding off on a Russian crude oil ban. The EU gets 40% of its gas and more than a quarter of its oil imports from Russia.
After an early dip, oil prices were trading higher by Friday afternoon.
While EU leaders failed to agree to a Russian oil embargo, an agreement was made for the US to help the EU wean itself off Russian gas. Under the agreement, the US and EU will boost supplies of liquified natural gas (LNG) to European countries by the end of 2022. According to Reuters, Europe will get at least 15 billion cubic meters of additional LNG supplies by the end of the year, and member states will also work to secure 50 billion cubic meters of American fuel until at least 2030.
While it’s unclear whether the supplies would be coming from additional production, this agreement could prove to be another tailwind for the already booming energy sector.

So what’s happening with gas prices?

The national average for a gallon of gas in the US as of Friday is $4.24 a gallon, according to AAA data. But some states are still seeing prices well above $5 a gallon.
Even with global shortages and rising prices at the pump, US oil output remains low.
The US produced 11.6 million barrels per day in the week ending March 18, according to the US Energy Information Administration (EIA). That’s down almost 11% from early 2020, pre-pandemic.

According to a Federal Reserve Bank of Dallas survey released Wednesday, oil executives are reluctant to grow output levels despite high oil prices. Over half of the oil executives surveyed said investor pressure to maintain capital discipline is the primary reason publicly traded oil producers are restraining growth.
Experts are saying most Americans won’t see any sort of price break for months. But states where gas prices are highest are looking for alternatives to help Americans at the pump.
California Governor Gavin Newsom on Thursday unveiled a plan to give tax breaks, free rides on public transportation and all Californians with a registered vehicle $400 to help pay for fuel.

2. The yield curve is close to inverting

As of March 24, the 10-year yield is just 0.21 percentage points higher than the 2-year yield, down from a 1.18 percentage point differential six months ago and a 1.48 percentage point differential a year ago.
The yield curve is a closely-watched indicator of the probability of a recession in the US. When the spread between the 10-year and 2-year note yields goes negative, the risk of a recession rises, as seen in the chart below.

The 2-year-10-year spread has a perfect record of predicting recessions. Every time it turns negative, the economy has fallen into recession within a couple of years.
But experts say this indicator isn’t a great investment tool and that investors shouldn’t give it much credence, primarily because there’s no telling just how soon after the inversion a recession will happen.
CNBC’s senior economics reporter Steve Liesman told Rebecca Quick on Friday that the indicator is not a great predictive tool and is “an even worse investing tool.”
“The data that I’ve seen shows you can get it [a recession] as quickly as six months or you can get it as late as 23 months later.”
Experts agree a recession isn’t likely to happen until at least 2023.

3. Earnings roundup

Next week’s earnings schedule includes a handful of notable companies, which could move some closely watched stocks.

  • Micron Technology (MU) – Scheduled for Tuesday. Over the past two years, computer memory company Micron has seen some benefits from the rapid growth in the electric vehicle (EV) market and the pandemic-led work-and-learn-from-home movement that fueled strong demand for personal computers (PCs) and notebooks. Micron has beat on revenue and earnings every quarter since 2020. Investors will be watching to see if demand for PCs is waning now that most people have returned to work.
  • Virgin Orbit (VORB) – Scheduled for Tuesday. This will be the first earnings report for Sir Richard Branson’s Virgin Orbit since it began trading on the Nasdaq on Dec. 30, 2021. The company will report financial results for the fourth quarter and full year 2021.
  • Chewy (CHWY) – Scheduled for Tuesday. After a wider-than-expected quarterly loss back in December 2021, investors will be paying attention to if supply chain issues and rising inflation are still hurting the pet food company.
  • Lululemon (LULU) – Scheduled for Tuesday. Athletic apparel company Lululemon entered the footwear business earlier this month with its first-ever running shoe for women. The company is slated to report its fourth quarter and full year 2021 earnings next week, but investors may be looking to see what types of growth opportunities the company plans to target for 2022.
  • BioNTech (BNTX) – Scheduled for Wednesday. Investors have seemingly lost interest in publicly traded biotechs, with several of the COVID-19 vaccine maker stocks trading at their lowest levels in about a year. While new coronavirus cases in the US have declined, cases are on the rise again around the world. The key focus for investors is what the future looks like in 2022 and beyond, and investors in any of the COVID-19 vaccine stocks will want to pay attention.

At the time of publication, Matt Miczulski owned shares of BNTX and VORB.

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