Inflation

The ongoing conflict in the Middle East is increasingly impacting energy markets, with Brent crude oil prices surging over 35% since the onset of hostilities, briefly reaching $118 per barrel. This rise is primarily driven by attacks on energy and water infrastructure that are straining supply chains. The Strait of Hormuz, a vital chokepoint for oil and LNG shipments, is currently seeing over 200 vessels anchored due to concerns over war-risk insurance. This situation is contributing to heightened volatility and inflation risks, positioning energy stocks as a potential hedge against geopolitical instability and supply disruptions. Companies like ExxonMobil (XOM) may benefit if oil prices remain elevated amid these tensions. It’s important for investors to monitor the extent of any physical damage to energy facilities and the duration of disruptions in the Strait of Hormuz, as these factors will significantly influence the persistence of shocks in global supply chains. ...

The S&P 500 reached a new high last week, but technical indicators suggest a correction may be imminent. The 14-day RSI has remained above 70 for three weeks, indicating overbought conditions, and a negative divergence is forming, where prices peaked while the RSI made a lower high. Currently, the VIX is in the mid-teens, a level often seen before significant market declines, which reflects a sense of complacency despite deteriorating market breadth and technical signals. Sentiment is also pressured by budget-friendly Chinese AI products and ongoing geopolitical tensions, alongside rising energy costs that could tighten credit and slow consumer spending. The SPY ETF, which tracks the S&P 500, is experiencing the highest correction risk since early 2022, especially as we approach the November elections. Traders should keep an eye on inflationary pressures from tariffs, as this could hinder potential Fed rate cuts and lead to a more substantial pullback in the market. ...