A botched Afghanistan withdrawal plus a “snub” from OPEC+ for more oil.
Those were the two top stories this morning as investors weighed ongoing growth concerns. Treasury yields sunk, too, as bonds ripped higher in a continuation of Friday’s rally amid new signs of Delta variant sluggishness from the Far East.
“Delta driven slowdown grips China,” said CNBC’s Jim Cramer in a pre-market tweet.
“Not sure of impact here yet.”
Cramer’s talking about last month’s Chinese retail sales data, which revealed only an 8.5% year-over-year increase in July vs. the 11.5% consensus estimate. The worse-than-expected economic data drove down oil initially before OPEC+ rebuffed President Joe Biden’s August 11th request for additional output.
Overall, crude futures remain down on the day despite spiking to an intraday high shortly before noon. OPEC+ announced previously that it would raise output by 400,000 barrels per day (BPD) per month beginning in August. Last week, Biden called upon the group of oil-producing nations to accelerate that output even further.
A source within OPEC+ said that “I don’t think there is a need [for extra oil beyond what’s already planned],” according to Reuter’s. Biden’s already rough day at the office only got worse following the OPEC+ rejection.
But did stocks react in a significant way?
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The S&P traded for a moderate loss this morning as uncertainty squashed bullish sentiment. In general, though, the market seemed to sidestep most of the bad news. Investors are likely waiting to see US retail sales data before making any large changes to their portfolios. Several major American retailers – Walmart (NYSE: WMT), Target (NYSE: TGT), and Home Depot (NYSE: HD) – are set to report earnings this week.
“I think it’ll be very key to hear from U.S. retail companies to see not only if this Delta variant surge is having any impact to consumer behavior, but also to what their projections are for the rest of the year, given that we’re in the back-to-school spending season,” noted Margaret Reid, senior portfolio manager at Union Bank.
“And we’ll also get July retail sales […] so a lot of incremental data points in the coming week with ties to the Delta variant.”
Nonetheless, Wall Street is still convinced that the bull run is far from over. Goldman Sachs’s top strategist David Kostin said as much in a note to clients this morning.
“In an earnings season with many surprises – including the highest frequency of EPS [earnings per share] beats in our 22-year data history – one of the most notable was the surge in corporate buyback activity,” Kostin remarked.
“Strong corporate equity demand is one reason we forecast a 5% return to our S&P 500 year-end target of 4700.”
There’s no doubt that buybacks have contributed to the persistent “bullish bonanza” of the last 18 months. But will they push equities to higher highs in the coming weeks?
It’s certainly possible (if not probable) given that the Fed’s taper schedule has yet to change. Wall Street analysts see a “taper warning” arriving as soon as September 22nd when the FOMC wraps up its next meeting. Fed Chairman Jerome Powell’s also set to speak Tuesday in a virtual town hall meeting. It’s unlikely, however, that he will reveal a taper timeline so as to not spook the market any further.
So, as usual, traders should feel content simply watching and waiting until the next leg up. History suggests another one’s almost here, and it could easily take stocks past Goldman’s 4,700 S&P target.
Even with OPEC+ drama, chaos in Afghanistan, and Delta variant concerns simmering just beneath the market’s surface.