US market - Up or Down after Oct CPI low 7.7% ?
Before predicting whether the 3 boards will continue to rally, it is necessary to recognize that US Oct CPI of 7.7% is "inaccurate". How so ?
This is because back in Mar 2022, President Biden has made the executive decision to release 1 Million bpd (barrels per day) of oil from US reserves; in an attempt to "keep" the cost US citizens pay at the pump - low.
The release - the biggest withdrawal is unprecedented in US Strategic Petroleum Reserves' (SPR) 46 years history - was to last until Sep 2022.
Perhaps, this also explained why President Biden had no choice but to make an official trip in Jul 2022, to Saudi Arabia to request the Shiek (Hd, OPEC+) to increase oil output. As history revealed, the visit did not bear fruit ultimately.
To continue to keep oil price "artifically low" (whether for midterm election or other reasons), President Biden further extended the SPR delivery program thru Dec 2022.
By end Dec 2022; together with the last interest hike on 16 Dec 2022, hopefully these actions [coupled with cumulative effects of all previous interest hikes] would generate sufficient dampening effect to push inflation further down.
President Biden is fully aware that he could not & should not further draw from SPR; without leaving SPR severely depleted for "real emergency" further down the road.
Afterall, the war is still ongoing. Even if the war ends tomorrow, sanction against Russian oil export will still hold, no ?
Despite knowing that it would be a futile attempt, on 19 Oct 2022 President Biden appealed to oil companies to use their record profits to ramp up oil production rather than enrich shareholders.
"You should not be using your profits to buy back stock or for dividends. Not now. Not while a war is raging,” President Biden said.
Perhaps it is precisely this reason that there is going to be a new policy thrown at investors come 01 Jan 2023.
Yes, I am referring to the "New withholding tax on US Publicly Traded Partnerships (PTP) Securities".
Could this be one way of clawing some funds back from energy stocks transactions ? Just a hunch, so do not quote me ok. LOL.
CPI index 0 Energy weighted component
When SPR program stops it is likely that CPI will rise by 1% ? Why ? This is because Energy constitute (in weightage) 8.2% in CPI composition (refer to above table).
With this, I hope I have explained the "inaccuracy" of Oct CPI of 7.7% successfully.
Apart from CPI "inaccuracy", crypto-exchange FTX "melt down" that no one saw coming will be another factor that will impede the 3 Boards upward trend.
Reason being, the US government recognizes cryptocurrency as a form of "property" (category) investment. A crypto investor would have pay up to 37% tax on short-term capital gains & crypto income and between 0% to 20% tax on long-term capital gains.
FTX.com being the 3rd largest crypto exchange in the US definitely exert a certain downwards pressure "influence" on the US market as a result of its owner Sam Bankman-Fried (SBF) filing for Chapter 11 bankruptcy on 11 Nov 2022.
The "depressing" effect will be here to stay until the FTX exchange issue is resolved. From the look of things, it could be a while due to the lack of proper book keeping and documentary.
Only time will reveal whether FTX fallout is creating a ripple effect across other crypto exchanges.
Take for instance HK's crypto exchange AAX has halted withdrawal (14 Nov) after FTX filed for bankruptcy.
Company has cited its action is unrelated to FTX. Is it really down to pure coincidence ?
In summary for the immediate to short term, there should be sector-specific rally (in early Dec) especially if the stock is non-financial in nature. Oil sector as well.
When SPR program expires on 31 Dec 2022 and President Biden does not extend the delivery program further - will CPI once again re-register a rise ?
It should because "without additional supply" and based on the law of supply & demand, oil prices should rise higher; pushing the CPI index up again.
Just as market reacted positively when CPI was down to 7.7%; conversely market should react "negatively" when CPI goes up, no ?
As for the Fed, they will continue to revise the interest rates based on schedule and will will not stop until inflation is brought back down to a comfortable 2%, right ?
This is how I feel about the situation. Do you think so too ? Share your thoughts in the Comment section below okie ? Tks.
Please give this a "like", tks in advance. The rating is important to me ! Hee hee.
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