Article published at 9:05 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Oil prices moving upward
- Growing conflict in Iran impacts Wall Street
- FedWatch tool stands at 60% likelihood of interest rate hike
We’re starting a shortened week markedly lower after a tough trading day Friday amid tough talk surrounding the direction of interest rates, significantly higher oil prices and the growing conflict in Iran.
The Dow Jones Industrial Average is giving up 0.88%, or 473 points, while the S&P 500 Index is falling by 0.25% and the Nasdaq Composite is down by 0.24% in early trading. WTI Crude Oil prices are up 2%, swinging into the $93-per-barrel range, while ICE Brent Crude prices are higher by 1.02%, heading toward $100 per barrel. Both are sitting at levels they haven’t seen since late June as strikes in the Middle East pick up, further threatening the flow of oil through the Strait of Hormuz.
Friday’s hot employment number left the unemployment rate steady at 4.1%. A stable job market allows the Federal Reserve to focus on its 2% inflation mandate, with Wall Street widely expecting an uptick in interest rates when the Federal Open Market Committee (FOMC) meets September 16. The CME FedWatch tool is registering a better-than-60% expectation that rates will be hiked by 25 basis points to the 3.75% to 4.0% range.
We have long had what’s considered the seasonality of September sell-offs with bearish mentality. Consider the history: Over the last 15 years, September numbers have collapsed 53% of the time and since 1928, nine of the 40 worst monthly losses in history have occurred in September.
Although the Cboe Volatility Index® (VIX® Index) is still relatively low at 15.42%, we should perhaps pay attention to the futures in which the September future is at 16.3%, and the October future is at 18.1%. The market’s sell-off seasonality, however, will keep all traders on their toes as will upcoming economic numbers this week with the Producer Price Index coming out on Thursday, followed the next day with the Consumer Price Index, the primary gauge on inflation.
In early trading, Nasdaq shares tracking higher include SanDisk climbing nearly 12% and Marvell adding more than 7%. Also tracking to the upside are shares of Seagate, up 6.3%, Micron, higher by 6.1% and Western Digital up by 5.9%.
Verizon and Corning shares are moving in opposite directions after the two announced a multi-billion-dollar supply pact through 2032. Verizon shares fell about 1% while Corning’s rose 3.5% in the early going.
Earnings reports to watch this week include GameStop, which opens its books tomorrow. Oracle, Adobe and RH, formerly known as Restoration Hardware, report on Thursday. There’s about an 11% implied movement on Oracle in either direction – which is in line with what we have seen over the last eight quarters. With this we have seen much call buying on the $165 and maybe surprisingly $175 lines.
Adobe’s implied volatility is at 5.1%, in line also with what we’ve seen over the last eight quarters. The activity here is primarily on the 280 and 300 lines. Even during Friday’s sell-off we saw calls at two times the activity we have seen over the last 10 trading days.
Happy Trading!
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