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XOM, CVX, TSLA, BABA, Li, XPEV, BYD
Yesterday, the S&P 500 dropped by 0.93%, ending a period of oscillation at a high and unexpectedly slipping downwards. The close came with a downward wick on a bearish candle, a sign that things aren’t looking too promising. After hitting new highs, the S&P has now stalled, and under pressure from negative news, it's testing lower levels for direction. Yesterday’s adjustment saw the index close at 5,708, surpassing the previous record high of 5,669. However, it’s worth keeping an eye on whether the index could retrace and fall below this 5,669-point level. A breakout above 5,669 would be bullish, and even a retracement that doesn’t break through it would still keep a positive outlook. But if it falls below, the upward trend could be over.
Since reaching new highs, the S&P has been forming small bullish and bearish candles. But yesterday, the bearish candle grew in size, suggesting volatility might increase in the coming days. A few consecutive bearish candles could lead the market into a correction. If recent gains are lost, it would severely shake the confidence of bulls. Such fluctuations at high levels could make the market direction even more uncertain, so in the next few days, holding above 5,669 is crucial.
On the other hand, the Nasdaq fell by 1.53%, losing 278 points and dipping below the 18,000 mark, while its previous high of 18,671 looms above. Breaking through that level seems challenging. The Nasdaq’s current pattern isn’t quite clear yet, and it may be forming a narrowing wedge, with support possibly lying around 17,100. Sometimes, market trends are hard to pinpoint, especially when there’s no clear breakout signal or ascending channel, making the trend feel somewhat random. We’re in one of those tough-to-judge moments.
As for the Dow Jones, it showed relative strength yesterday with a smaller pullback, even rebounding within the day to recover short-term moving averages. There’s no signal yet of a steep drop, but the higher the index climbs, the more vulnerable it becomes to a sudden plunge. Markets that rise too high often feel the gravitational pull of a significant fall, like we might expect one day.
Though the market carries some risk signals, it’s not yet at a point to turn bearish. Hopefully, key indicators recover soon.
The reason behind the U.S. market’s decline appears to be the escalating Middle East conflict. Around 9 a.m. yesterday, a White House official warned that Iran was about to launch missile strikes on Israel. Shortly after, Iran fired a barrage of missiles, intercepted by Israel’s defense system. President Biden and Vice President Harris monitored the situation from the White House Situation Room. Iran claimed the attack was retaliation for Hezbollah’s earlier predictions of revenge. Israel believes the attack has ended, estimating Iran launched 180 missiles, though casualty data is still pending. This news rattled the markets, with early trading suffering losses during the missile attacks, though they recovered somewhat after the strikes concluded.
Oil prices reacted strongly, with WTI crude rising 4%, though it later settled at a 3% gain. Energy stocks, particularly in the oil and gas sectors, were among the best performers. Energy stocks are cyclical, and the ups and downs in oil prices depend heavily on supply chain factors, including disruptions in key shipping lanes like the Strait of Hormuz, through which 21 million barrels of oil pass daily. Iran’s significant oil reserves and strategic location play a critical role in global oil markets. If oil prices climb above $100 per barrel, oil companies stand to profit handsomely, while prices dropping below $40 would create serious challenges. At $70 per barrel, we’re in a tricky spot with no clear direction.
Energy stocks, like ExxonMobil and Chevron, tend to perform well in high oil price environments but struggle during downturns. Their high dividend yields often make them attractive, particularly when prices are low. Back in 2020, energy stocks offered the highest dividends across industries, but now, with Exxon’s yield at just 3.14%, it’s not as attractive compared to bonds or savings, and it comes with the risk of falling oil prices.
In other news, U.S. dockworkers from Maine to Texas have gone on strike, impacting over 68% of imported goods. The resulting supply chain disruptions have raised costs, but these strikes, along with the Middle East situation, are likely one-off events and won’t have a lasting impact on inflation.
More concerning for inflation is employment data. August saw 8.04 million job vacancies, a rise from 7.67 million the previous month, beating predictions. Yet, even though vacancies increased, the number of people hired dropped from 5.4 million to 5.3 million, likely due to high-interest rates burdening businesses. All eyes are now on this week’s non-farm payroll data, which could influence the likelihood of a Fed rate cut. Analysts expect job growth to slow to 140,000, while the unemployment rate holds steady at 4.2%.
Historically, October has seen three major market crashes, but that doesn’t mean we’re headed for another one this year. Rate cuts don’t always push stocks higher, especially when they coincide with economic downturns. The key will be whether the U.S. economy can achieve a soft landing, avoiding recession while benefiting from rate cuts. However, given how high the market has already climbed, any gains from a soft landing or rate cuts may have already been priced in.
October is a crucial month ahead of the election, and while there’s uncertainty about who will win, a clear result—no matter who comes out on top—tends to benefit the stock market. Both parties have reasons to avoid a market downturn before Election Day, as a healthy economy is a key factor in winning votes.
Tomorrow, Tesla will report its third-quarter vehicle deliveries. Other electric vehicle makers like Li Auto, XPeng, and BYD have already posted impressive sales data. Li Auto delivered 53,708 vehicles in September, up 49% year-on-year, while XPeng saw a 16% rise. Tesla’s recent price action shows it dipped intraday but recovered by the close, signaling hope for a breakout above $271.
Alibaba, meanwhile, has rebounded for several days, likely driven by China’s supportive monetary policy and its stock’s recent steep declines, offering a chance for a strong bounce. China’s assets seem to be bottoming out and recovering, and there’s even been news that famed investor Michael Burry has taken positions in some Chinese stocks. With Alibaba showing strong volume lately, it could be poised for a rally.
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