Weekly Market Update

Author : The BlackSummit Team
Date : October 14, 2023

Global Market News

Global equities recover some losses

Global equities recovered some losses from the last several weeks. The Dow Jones rose 0.79% on the week, while the S&P 500 increased by 0.45%. On the other hand, the Nasdaq decreased slightly this week, declining 0.18%. The US 10-year Treasury dropped several basis points but remained high, ending the week at 4.62%. Meanwhile, the price of a barrel of West Texas Intermediate crude rose more than 5% amid turmoil in the Middle East, closing Friday at $87.69. Volatility, as measured by the CBOE Volatility Index, closed the week at 19.32.

Inflation remains hot

US economic data showed inflation rose 3.7% in September, unchanged from the previous month on a year-on-year basis, but slightly exceeding expectations. After a sharp slowdown this summer, September’s report proves that inflation remains sticky and it also highlights the possibility that inflation might settle around 3% instead of at the Federal Reserve’s 2% target.

Updated Market Figures

International Developments

Israel-Palestine conflict reignited by Hamas attack

The conflict between Israel and Palestine reignited last Saturday as Hamas – widely recognized as a terrorist organization – launched a surprise attack against Israeli positions and civilians. The event has been described as Israel’s “Pearl Harbor” and Israel declared war against Hamas, in addition to unfolding a total blockade against the Gaza Strip. Israel on Friday warned all Palestinian civilians to evacuate the Gaza Strip immediately, as the country prepares what is anticipated to be a ground offensive into Gaza. Since war has broken out between Hamas and Israel, the US has offered firm military and diplomatic support.

NATO members pledge new military aid to Ukraine

Ukrainian President Volodymyr Zelensky visited NATO headquarters on Wednesday to request additional military aid amidst the backdrop of events unfolding in Israel and Palestine. Top NATO officials pledged more than $2 billion in additional military aid in response, with delivery set to take place before winter sets in. While NATO Secretary General Jens Stoltenberg sought to reassure Zelensky that “[NATO] will stand by Ukraine as long as it takes,” senior NATO officials privately remarked that violence in Israel and the budget fight in US Congress are cause for concern as to long-term funding and support for Ukraine from America.

US Social & Political Developments

House Speaker Chaos

Louisiana representative Steve Scalise has dropped out of the race to become the next Republican nominee for House Speaker, a position left up in the air since Kevin McCarthy’s ousting at the hands of a small group of his caucus. Representative Jim Jordan of Ohio looks to be the next frontrunner in the race, but it is so far unclear whether he can secure the nomination or reach the necessary 217 votes on the House floor. The vacancy has left Congress essentially immobile.

White House considering bundling Israel, Ukraine aid request

The White House is reportedly including assistance for Ukraine and Taiwan in its request for congressional approval of funding for Israel, as well as additional funding for US border security. This funding would provide military aid and expand the domestic production of arms in the US. The move would be made in the hopes that such a package would increase the chance that Congress would approve aid to Kyiv despite growing opposition from Republicans. Some Republicans have already expressed that they will oppose bundling aid for Ukraine with aid for Israel.

Corporate/Sector News

Hollywood negotiations break down, auto strike continues

Two prominent strikes are still ongoing in the US – the SAG-AFTRA actors’ union against Hollywood studios and the United Auto Workers against major American car manufacturers. Negotiations between studios and actors were suspended Wednesday as the two sides argued over streaming revenue, the use of artificial intelligence, and other issues. The strikes have been ongoing since July. For the United Auto Workers, the union has expanded its strike to Ford’s biggest plant, a Kentucky truck plant that is the company’s most profitable operation. The union has stated that Ford’s offer did not satisfy their demands, and it is looking at expanding the strikes to other plants, including ones operated by General Motors and Stellantis.

Exxon Mobil agrees to acquire Pioneer Natural Resources

Exxon Mobil has announced it will buy Pioneer Natural Resources in a deal worth $59.5 billion, its largest since acquiring Mobil two decades ago. The company said the purchase would help lower emissions and produce lower carbon-intensity fossil fuels. The deal greatly enlarges Exxon’s presence in the Permian Basin and would total over a million combined net acres in the US as a whole. Exxon Permian production will double to 1.3 million barrels of oil equivalent per day, and is expected to climb to 2 million barrels of oil equivalent per day by 2027.

Defense stocks surge amid Israel-Hamas conflict

Stocks of major US defense firms have soared after Hamas’ attack on Israel, with Lockheed Martin and Northrop Grumman seeing their largest gains in over three years. The market capitalization across the largest defense contractor firms rose $28.4 billion. Analysts believe that, while these stocks have historically made gains after geopolitical shocks, the increase eventually peters out. The same dynamic occurred after Russia’s full-scale invasion of Ukraine, as Lockheed and Northrop Grumman gained 20%, and yet the sector fell almost 20% over the following six months. Analysts believe that to sustain such a rise, a broad increase in national defense budget would have to accompany it.

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Source: Wall Street Journal