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But there is one big winner coming out of the ordeal: Oil stocks.
What happens: The cartel of major oil producers and its allies, led by Saudi Arabia and Russia, announced on Wednesday its biggest production cut since the start of the pandemic. The reduction, equivalent to about 2% of global oil demand, does not begin until November, but prices received an immediate boost.
Oil prices rose to three-week highs after the announcement. Brent oil, the international benchmark, hovered just below $95 a barrel. barrel on Friday morning, up about 6% since Monday.
US oil and gas stocks have boomed as a result. The S&P 500 energy sector — which includes stocks like Exxon Mobil
(CVX) and Phillips 66
(PSX) — is up nearly 15% for the week, while the index as a whole is up just 3.7%.
This is because supply cuts mean higher profits for the energy companies. “The big picture means higher oil prices and higher cash flows,” said Stephen Ellis, senior analyst at Morningstar. The production cut will lead to higher dividends and share buybacks among energy companies, he said.
So far, energy companies have had an exceptional year.
Exxon Mobil is up more than 60% year to date, Halliburton
(HALL) has risen almost 25% and Occidental Petroleum
(OXY)boosted by Warren Buffett’s Berkshire Hathaway
(CONFLICT) drastically increased its stake in the company, has increased 127%. The S&P 500 has fallen about 22% over the same period.
The big picture: Energy companies in the US and Europe have made eye-popping profits this year as supply crises raise crude prices.
Exxon’s profit, excluding special items, came to $17.6 billion in the second quarter of 2022, a 273% increase over the same period a year ago. Chevron’s result in the second quarter increased accordingly by 277% compared to the previous year.
Energy companies have largely used these profits to attract and reward shareholders – making their shares even more attractive. Major oil and gas companies are on track to buy back near-record amounts of shares this year. Estimates from Bernstein Research show that the seven largest companies, including Exxon Mobil, Chevron, BP
(BP) and Shell
(SHLX), is poised to return $38 billion to shareholders through buybacks this year. That would be nearly quadrupling the $10 billion in buybacks completed in 2021.
“Companies are much more focused on shareholders than they have been in the past,” said Quincy Krosby, chief strategist for LPL Financial. “As a result, the sector is rewarded. The overall analyst consensus is that clients should invest in these companies even as they sell out.”
Takeaway: The energy sector single handedly saved stock market in the second quarter, and it appears to be on track to do the same this quarter. This OPEC announcement could make 2022 the big energy year.
Investors are holding their breath this morning as they await the release of the Bureau of Labor Statistics’ latest monthly jobs report.
All eyes will be on whether the labor market shows signs of loosening — one of the most crucial factors that will help the Federal Reserve determine its next steps in the fight against decades of high inflation.
The U.S. economy is expected to have added 250,000 jobs in September, which would be the slowest monthly job gain since December 2020, according to Refinitiv estimates.
If the numbers come in as estimates suggest, investors will likely be very happy. A weakened labor market will put downward pressure on wages and inflation: This means the Fed’s policy is working and it can pivot away from aggressive rate hikes.
August jobs data have already shown that historically a tight labor market has loosened with a notch, reports my colleague Alicia Wallace. The jobs report for that month showed that America added 315,000 positionsa much lower level than the average monthly gain of 512,000 over the past 12 months.
But while the long-awaited number of jobs is falling, it remains robust, BLS data show. The monthly average before the pandemic was around 200,000.
The midterm elections are a little more than a month away, and Wall Street is hoping for gridlock.
That’s because investors actually prefer it when politicians argue and not much actually gets done. reports my colleague Paul R. La Monica.
Power splits in DC mean big returns in NYC. According to data from Edelman Financial Engines, the S&P 500 has returned 16.9% annually during the nine years since 1948, when a Democrat was in the White House and Republicans held majorities in both houses of Congress.
“Should Republicans take the House at a minimum, stocks are likely to react positively based on the proposition that continued crisis in Washington is good for business in the absence of major tax and policy changes,” Daniel Berkowitz, senior chief investment officer at Prudent Management Associates, said in a report.
But investors shouldn’t sweat too much about the election results. Stocks tend to rise over the long term – regardless of politics. The average annual market return since 1948 during periods of full democratic control is still a solid 15.1%. Stocks posted an average gain of 15.9% when Republicans were in charge.
The bottom line: Markets should worry less about election results and more about the election itself. Dan Clifton, Head of Washington Research at Strategas Asset Management, noted in a report that the S&P 500 has fallen an average of about 19% in midterm election years prior to the casting of votes. But the market then tends to fall until October.
The Bureau of Labor Statistics releases its jobs report in September at 8:30 ET.
Coming next week: Third quarter earnings season begins. Expect reports from major banks like JPMorgan Chase
(PNC) and US Bancorp and consumer goods such as Pepsi
(WBA)s and Domino’s.
The CPI and PPI, two closely watched inflation measures in the US, are also due to be published.