WTI crude oil was as high as $97.63/bbl overnight and remains above $94 at the open. The equity markets are looking through the implications of higher gasoline and petrochemical prices. All the major indexes opened strongly in the green, all industry sectors are green, led by energy (+1.4%), and the has fallen 5%.
The bond market is also brushing aside the inflation risks of oil prices staying higher. Yields are down 1 to 2 basis points across the US Treasury yield curve today, though also markedly higher for the trailing month; the 2-year is 20 bps higher, the 12 bps. The Fed Open Market Committee meets this week, and we will hear from Powell on how they view the energy situation.
In other commodities, and are essentially flat on the day. Crypto remains remarkably resilient with at $72.4K, +9.5% in a month. The is modestly lower at 99.3, up 2.3% in a month.
Of note is that credit spreads are widening, probably some caution spillover from the problems being seen in private credit, which is finally seeing a small bounce today, where is up 6.8% today (-37.3% YTD). BBB corporate bond spreads have moved from +0.93 on February 2nd to +1.16%, the highest since May’25. High-yield bonds +2.64% to 3.24%, also the highest since May.
The market’s willingness to trade higher in the face of high oil prices and weaker labor statistics reflects the strong demand for stocks and expectations for continued strong earnings growth, along with solid GDP growth.
Investors should expect continued volatility until the energy situation stabilizes. There’s a relief rally in the future when a return to “normal” energy markets becomes clearer. An extended period of very high energy prices may bring stagflation risk into the conversation. The sooner the Iran conflict is resolved, the better.