Twelve Charts This Week - 9/13/2024
Twelve Charts This Week - 9/13/2024
1
The price of oil started this week with another decline. On Tuesday, WTI crude hit a low of $65 before bouncing to $69 by this morning. Demand for physical remains strong due to low inventories but demand from financial players (mainly hedge funds) has never been lower than it is now. Goldman Sachs says that “oil financial demand dropped to its new all-time low, and has plummeted by a massive average 7 million barrels per day over the past two months.” The chart shows HEDGE FUNDS’ ULTRA BEARISH STANCE ON OIL with record low net-long positions in Brent and WTI. At the extremes, this measure can be used as a contra indicator. The price of oil rebounded quickly from its lows near $25 in 2016 and 2020. The main question for oil is demand from China and the US. China demand projections are coming down, while US demand is stable and could in fact accelerate. On the supply side, it is worth noting that OPEC+ is not reacting to the decline so far and that the US is now producing 50% more oil than Saudi Arabia.
🚨 Impacted by this: Price of oil and other energy commodities, hedge fund returns, XLE, XOP, OIH, inflation, oil inventories.
2
One interpretation of AEI’s widely-known chart on inflation (compiled by Mark J. Perry) is that inflation tends to be higher in every sector 1) where the government is heavily involved and 2) that cannot be outsourced to a low-cost country. Both of these conditions are true in health insurance (chart) and health services. Since 1999, HEALTH INSURANCE INFLATION has outpaced overall inflation by a factor of four to one (chart). The stocks of Cigna and United Healthcare are near their all-time highs. Their profit margins are steady but reasonable, which suggests that the inflationary component does not start with their pricing of premiums but with the underlying health services that they cover. What are possible solutions? Lower-cost services or substitution through drugs (for example Ozempic), greater pricing transparency at hospitals and clinics, higher deductibles for all-you-can-eat health plans etc.
🚨 Impacted by this: Health inflation, overall inflation, government involvement in health services, Medicare, Medicaid, XLV, IHI
3
If you bought a stock index, say the S&P 500, every day at the market open and sold it at the close, and did the same every day since the year 1993, you ended up losing money. The reason is that the index gaps up or down at the open, to reflect news and events that took place when the market was closed. But if instead you did the opposite and bought when the market closed (by buying after-hours index futures) and then sold at the market open in the morning, you did very well. This is what this chart purports to show: THE BIGGEST MOVES UPWARD IN THE EQUITY MARKET TAKE PLACE DURING NON-MARKET HOURS. No doubt some hedge fund will test this theory, going long after-hours and short during market hours. The explanation for this discrepancy is two-fold: 1) most economic data and quarterly earnings are released when the market is closed, 2) foreign events impact equities while the market is closed. We explained in TCTW - 1/12/2024 that the highest number of people awake globally is at 7am EST and the highest number asleep is at 4pm.
🚨 Impacted by this: Trading strategies, SPY, QQQ, impact of foreign events, impact of earnings releases and economic data.
