- Meta Platforms, Inc NASDAQ:META (META) is up 30% over the last fortnight.
- The NASDAQ composite is up 6% over the same period.
- Oil markets are down 10%, providing a pathway to more growth in the technology sector.
The wrap on the week
A blockbuster 2022 Q4 earnings beat by META caught the market by surprise and piqued the interest of those underweight in growth and riskier assets, particularly technology stocks.
META has climbed a remarkable 30% in the last fortnight as investors reassessed the company’s outlook on surging revenue and moderated expenditure. Dragging with it the entire technology index, the NASDAQ is up over 6% in the same time frame.
Those likely to benefit from the Artificial Intelligence market segment growth are trailing META the closest, including next-generation chip and cloud provider NVIDIA Corporation NASDAQ:NVDA (NVDA), up 10% from the 23rd of January.
Fast forward to the tail-end of last week, and the giant nonfarm payrolls print and a still lower unemployment figure in the US had investors second-guessing themselves. They are concerned there is now more runway for a more significant Federal Reserve interest rate hike.
Hangover and risk-off
The present market mood is reflected in the recent upward trend in the US Dollar. The currency has recently climbed 1% against a basket of currencies, pressuring US dollar-denominated commodities and reflecting a short-term move out of riskier investments into cash hoarding.
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The present rally in safer holdings is a relatively small gain and is not suggestive of a longer-term trend emerging. META and co are holding on to gains, with present earnings growth comfortably outrunning the current inflation trajectory.
Allied with the positive assessment of US corporate and, in particular, technology company earnings growth relative to inflation is the downward trend in energy prices.
The price for the prompt delivery of US crude is down 10% in the last fortnight, and international crude benchmark Brent is trailing the US market, down 9% over the same time horizon.
The US energy sector’s growth and productivity continue to power ahead of its international rivals, providing a massive pressure release valve for global markets.
US Production and exports
US domestic production is still climbing. The four-week production average is up 5% on the year (nearly one million barrels per day across oil and oil condensates), despite reduced vehicle demand onshore US.
The four-week average of US gasoline, “Other oils” (Other oils include a large number of gasoline blending components), and distillate products supplied to the US market is 1.5 million barrels per day lower than at the same time last year.
It’s anybody’s guess why that is the case, but much of the reduced demand can be attributed to remote working, and a surge in hybrid and electric vehicles as the fleet is upgraded post-COVID.
The combined 2.5 million barrels per day of US excess created in the last 12 months is finding its way onto the export market as the US swings to being a net oil and oil product exporter. It is helping Europe cope with the loss of Russian supplies and is keeping a lid on international oil prices.
Combined with the positive (negative for prices) supply/demand balance in the US, oil producers are increasing oil well productivity, upping their well inventory (DUCs) and increasing the number of oil rigs outright. That suggests these oil price reductions are very durable over the next 12 to 24 months.
As rates climb out of the near negative zone, the relative impact that monetary policy and interest rates will have on markets will dampen; 25 basis points of 4.75% is relatively much less than 25 basis points of 1%.
The Fed will lose some control with its present toolkit responses, and the market will have to do a lot of heavy lifting regarding prices. The market nervousness over the Fed’s action to head off resurgent inflation will dwindle as a new spectre is found to replace the Federal Reserve bogeyman.
For now, the energy markets are carrying the bag, particularly the US energy sector, providing a deflationary pathway that the technology sector is eager to follow.