In less than a year, Chevron has gone from being Wall Street’s favorite Big Energy company to a show-me story. Investors who buy the stock now should end up liking what they see.
Chevron stock (ticker: CVX) has fallen 17% in 2023, making it the worst performer by far among the half-dozen global super majors this year. Exxon Mobil (XOM), by comparison, is down just 2% this year, and the Energy Select Sector SPDR exchange-traded fund (XLE) is about flat.
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Most of the drop has come during the past few weeks after a disappointing earnings report that included news of a surprise delay in the development of a key oil field in Kazakhstan, while Chevron’s $60 billion deal to buy Hess (HES), an independent energy producer, not only failed to excite investors but was seen as a sign of weakness by some.
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Exxon Mobil Corp. confirmed Wednesday an agreement to buy shale driller Pioneer Natural Resources Co. in an all-stock deal valued at $59.5 billion, or $64.5 billion including debt.
“Pioneer is a clear leader in the Permian with a unique asset base and people with deep industry knowledge,” said Exxon Mobil Chief Executive Darren Woods. “The combined capabilities of our two companies will provide long-term value creation well in excess of what either company is capable of doing on a standalone basis.”
Pioneer shares rose 1.9% in premarket trading, while Exxon’s stock fell 1.3%.
Under terms of the deal, Pioneer shareholders will receive 2.3234 Exxon shares XOM, -0.42%
for each Pioneer share PXD, +0.76%
they own. The companies said that based on the Oct. 5 closing prices of $108.99 for Exxon’s stock and $214.96 for Pioneer’s stock, the deal values Pioneer shares at $253.23 each, or a 17.8% premium.
The deal combines Pioneer’s more than 85,000 net acres in the Midland Basin with Exxon’s 570,000 net acres in the Delaware and Midland Basins. Combined, the companies will have an estimated 16 billion barrels of oil equivalent in the Permian.
Exxon, Pioneer merger provides an estimated combined 16 billion barrels of oil equivalent resource in the Permian.
Exxon Mobil Corp.
Exxon said the merger will increase its lower-cost-of-supply production and short-cycle capital flexibility. From Pioneer’s assets, the company expects a cost of supply of less than $35 per barrel.
Exxon said the deal will accelerate plans to achieve net zero greenhouse gas emissions in the Permian, as the company plans to use its own plans to accelerate Pioneer’s net-zero emissions plan by 15 years, to 2035.
The deal is expected to immediately add to Exxon’s earnings per share and free cash flow when it closes, which is expected to occur in the first half of 2024. The merger is expected to result in “significant” synergies.
Siebert Williams Shank analyst Gabriele Sorbara expects the deal, which “fits perfectly” for Exxon, to generate about $2 billion of synergies over the next decade. Sorbara also sees an “inflection to improved well productivity” in the second half of 2023 and beyond, which isn’t currently reflected in analyst expectations, so it boost the benefit to Exxon.
While Sorbara expects some scrutiny from the Federal Trade Commission, but believes “the deal should ultimately close,” without the receipt of a competing bid.
Citi was lead financial advisor to Exxon, and Centerview Partners was financial advisor and Davis Polk & Wardwell was legal advisor. For Pioneer, Goldman Sachs, Morgan Stanley, Petrie Partners and Bank of America Securities were financial advisors and Gibson, Dunn & Crutcher LLP was legal advisor.
Exxon’s stock has rallied 12.7% over the past 12 months through Tuesday and Pioneer shares have slipped 3.5%. In comparison, the Energy Select Sector SPDR ETF XLE
has climbed 11.6% and the S&P 500 index SPX
has advanced 21.4%.
Inflation remains a top concern among Americans, so what do the Republicans seeking President Joe Biden’s job say they’ll do about it?
MarketWatch asked the 2024 GOP White House hopefuls to give at least three ways that they would address the elevated prices that have blown up many household budgets.
Most campaigns provided responses, while some didn’t but have offered proposals in other venues. See what they’re all planning below.
The economy is the No. 1 issue for Republican voters, according to a recent Wall Street Journal poll, which found 36% citing the economy generally and an additional 10% citing inflation.
MarketWatch contacted the eight contenders who took part in their primary’s first debate, along with former President Donald Trump, who skipped the debate, and two relatively well-known contenders who failed to qualify for the first debate, Larry Elder and former Congressman Will Hurd. They are listed below in order of their ranking in the latest polls, based on a RealClearPolitics moving average.
Inflation was low when Trump became president, with prices rising less than 2% a year. That was even considered a problem before the COVID-19 pandemic, with inflation often characterized as stubbornly or persistently low. Inflation began to spike in 2021, shortly after Biden took office, due to a global shortage of goods and a huge rebound in consumer demand following the pandemic’s early stages. Economists say massive stimulus by both the Trump and Biden administrations as well as low interest rates fostered by the Federal Reserve helped to push inflation to a 40-year high.
“I would get inflation down,” Trump said in a recent interview with NBC’s “Meet the Press,” while saying that “we did a great job with inflation.” His campaign pointed MarketWatch to a number of policy proposals in which Trump himself is quoted.
Former President Donald Trump walks over to speak with reporters before departing from Atlanta’s airport last month.
AP
The former president says he’ll rein in what he calls Biden’s “wasteful spending,” which Trump says is key to stopping inflation. Trump is proposing to use what’s known as impoundment authority to reduce federal spending. That term refers to the ability of a president to withhold congressionally appropriated funds from their intended use, according to the Committee for a Responsible Federal Budget.
Trump also calls for boosting energy output. “When I’m back in the White House, I will immediately unleash energy production, slash regulations, like I did just three years ago, and repeal Biden’s tax hikes to get inflation down as fast as possible, and it will go quickly, so that interest rates can get back under control,” Trump says on his campaign website. “I would get inflation down, because drill we must,” he told “Meet the Press.”
Florida Gov. Ron DeSantis, says a spokesman, “will reduce inflation by, among other measures, tackling government spending, unleashing domestic energy and removing burdensome Biden administration regulations.”
Florida Gov. Ron DeSantis speaks in July during a press conference in West Columbia, S.C.
AP Photo/Sean Rayford
In his economic plan, DeSantis leans heavily into energy policy for addressing inflation. “DeSantis will unleash our domestic energy sector, modernize and protect our grid and advance American energy independence. This will not only increase our economic and national security while reducing inflation, [but] it will also help fuel a manufacturing renaissance that will create jobs, revitalize our communities and improve our standard of living,” says his plan.
He told “CBS Evening News with Norah O’Donnell” that, as president, he would “stop spending so much money. We need a president that’s going to be a force for spending restraint, because that’s one of the root causes, with Congress spending so much.” He criticized both Democrats and Republicans for government spending.
Vivek Ramaswamy
Republican presidential candidate Vivek Ramaswamy speaks in April at an event in Iowa.
AP
“This isn’t complicated,” entrepreneur and author Vivek Ramaswamy said in a recent post on X. “Fight inflation, unleash growth by taking the handcuffs [off] the U.S. energy sector & dismantling the regulatory state.” His campaign didn’t respond to MarketWatch’s request for comment, but his campaign website offers the following proposals:
Ramaswamy is also calling for dramatically changing the Federal Reserve, by ending the central bank’s dual mandate of keeping inflation low and maintaining full employment. “Limit the U.S. Fed’s scope: stabilize the dollar DXY
& nothing more,” his campaign site says.
Republican presidential candidate Nikki Haley is a former U.S. ambassador to the United Nations and former South Carolina governor.
Getty Images
“We want to eliminate the federal gas tax completely,” Haley told Fox Business. “We have to get more money in our taxpayers’ pockets.” That tax helps pay for highways, but she said the system isn’t working, echoing a point that some policy analysts have previously made. Biden pushed for temporarily suspending the federal gas tax in 2022, but Congress didn’t provide sufficient support for his proposal. In her economic speech, Haley also promised to cut income taxes for working families and make permanent the tax cuts that small businesses scored in 2017’s GOP tax overhaul.
The former U.S. ambassador to the United Nations said members of Congress are “spending like drunken sailors,” as she promised to reduce the federal government’s outlays. “I will veto any spending bill that doesn’t take us back to pre-COVID levels,” she told Fox Business, referring to budgets that date to before the onset of the coronavirus pandemic in March 2020.
Haley in her speech Friday pledged to support the U.S. energy industry, as she suggested that Washington has been “stifling it.” She said: “We’ll drill so much oil and gas, families will save big on their utility bills.”
Mike Pence
A spokesman for Pence’s campaign pointed to the former vice president’s plan for “ending inflation,” which calls for actions such as reducing the federal government’s spending and changing the Federal Reserve’s job description.
Former Vice President Mike Pence served as governor of Indiana and as a congressman before becoming Donald Trump’s running mate in 2016.
AP
A Pence administration would “end runaway deficits by freezing non-defense spending, eliminating unnecessary government programs, repealing over $3 trillion in new spending under Biden, and reforming mandatory programs that drive our debt,” the plan says. Earlier this year, he urged “commonsense and compassionate” reforms for programs such as Social Security and Medicaid.
Pence wants to end the Fed’s dual mandate, which calls for the U.S. central bank to focus on full employment and stable prices. “Trying to serve two, often contradictory goals has led to wild fluctuation in rates,” his plan says, adding that it’s better to “leave employment policy to the president and Congress.”
The former vice president’s plan said he aims to bring supply chains and production “back home,” and that would happen by “removing regulatory burdens, enacting pro-growth tax policies, and ensuring access to abundant American energy.” In other words: “We will fight inflation by making America the best place to do business again.”
Similar to his 2024 GOP rivals, Pence blasts Biden’s energy policies, though some of the Democratic incumbent’s stances, such as his approval of the Willow drilling project in Alaska, have also been criticized by environmental groups. Pence’s plan says: “It is time to reverse Biden’s attack on American energy by restarting oil and gas leasing on federal lands, opening the Arctic and offshore regions for exploration XOP,
approving safe transportation of oil and gas, mining rare earth minerals, and rejecting climate change hysteria that is causing U.S. energy XLE
production to fall.”
Chris Christie
Former New Jersey Gov. Chris Christie addresses a New Hampshire audience in April.
AP Photo/Charles Krupa
Chris Christie’s White House campaign didn’t respond to MarketWatch’s requests for comment, but the former New Jersey governor has emphasized that reducing government spending will help tame inflation.
“The out-of-control government spending has created this inflation,” Christie said in June during a CNN town hall. “I mean, even Larry Summers, who I don’t agree with much on, former Democratic Treasury secretary, warned Joe Biden, ‘Don’t do this spending. It’s going to cause the inflation.’ So, first, we need to bring spending down, and we’ve talked about that before.”
U.S. Sen. Tim Scott pointed to reducing the federal government’s spending and repealing one of Biden’s signature legislative packages, when asked about how he would address inflation.
Tim Scott, a U.S. senator from South Carolina, speaks last month during the presidential debate in Milwaukee.
Getty Images
Scott, from South Carolina, said in a statement that he would aim to “snap non-defense discretionary spending back to the pre-COVID 2019 baseline.” He described that as stopping Democrats from “turning the temporary pandemic into permanent socialism.”
Scott said he would rescind the Inflation Reduction Act, which is Democrats’ big economic package aimed at addressing climate change, capping drug costs and raising hundreds of billions of dollars through taxes on corporations. “The Inflation Reduction Act actually increased inflation and the only thing it reduced was money in our pockets,” he said in his statement. “Cutting that off and restoring tax cuts and eliminating the tax increases would go a long way to having the kind of stimulative impact in our economy and controlling spending.”
Scott called for stronger economic growth. “We have to also grow our economy somewhere near 5% consistently,” he said, adding that could create 10 million jobs. The U.S. economy grew by nearly 6% in 2021 after contracting in 2020 as COVID hit, then it expanded by about 2% in 2022.
Former Arkansas Gov. Asa Hutchinson blames “excessive federal spending” for leading to inflation when giving speeches, and outlines a plan for “fiscal responsibility” on his campaign site.
Asa Hutchinson, governor of Arkansas from 2015 until this year, speaks at an Iowa event in April.
Scott Olson/Getty Images
“Restore discipline by reducing federal government size, cutting spending, balancing the budget, and lowering the deficit to tame inflation,” it states.
When Hutchinson was governor, he signed a $500 million tax-cut package, saying “it could not come at a better time with the continued challenge of high food and gas prices.” That was in August 2022. On his campaign website, he repeats a call to cut taxes and “reduce regulations to boost the private sector and enhance wages for American workers.”
Hutchinson’s campaign did not respond to a request for comment from MarketWatch.
Doug Burgum
North Dakota Gov. Doug Burgum, a GOP presidential hopeful, speaks at the Iowa State Fair in August.
Brandon Bell/Getty Images
North Dakota Gov. Doug Burgum’s website says that as president he would “get inflation under control, cut taxes, lower gas prices RB00, +0.31%,
reduce the cost of living and help people realize their fullest potential.” It doesn’t provide specifics.
A spokesman for Burgum’s White House campaign didn’t respond to MarketWatch’s requests for comment. A spokesman reportedly told the New York Times that the campaign will roll out its vision and plans on its own timeline.
Larry Elder
Larry Elder, a conservative radio host and a gubernatorial candidate in California in the failed 2021 recall of Democratic incumbent Gavin Newsom, said he views energy and tax policy and a constitutional amendment as ways to whip inflation.
Larry Elder is a conservative radio host and former gubernatorial candidate in California.
AP
“Reverse the war on oil CL00, +0.93%
and gas NG00, -2.65%
; permit drilling in Anwar [Arctic National Wildlife Refuge]; authorize the Keystone Pipeline; reverse the Biden restrictions on drilling on federal lands; and encourage nuclear energy NLR,
” Elder said in a statement.
“Encourage an amendment to the Constitution to set spending to a fixed percent of the GDP,” he also said.
Elder said the reduction in spending forced by that constitutional amendment would “coincide with a steep reduction in personal and corporate income taxes,” offering further help to Americans with stretched budgets.
Will Hurd
2024 Republican presidential hopeful Will Hurd, a former Texas congressman, speaks in Iowa in July.
AFP via Getty Images
Former U.S. Rep. Will Hurd of Texas announced his candidacy in June but so far hasn’t made it to the debate stage. In his campaign-launch video, he labeled inflation “still out of control.”
In a post on X in June, Hurd called for reining in spending. “You cannot be putting government funds into, at a time where you’re seeing the rising inflation,” he said.
And he said tax hikes are a nonstarter when inflation is high. “The worst time to talk about increasing taxes is when everybody’s hurting from inflation.”
Hurd also said the deficit should be addressed, to “start bending the curve back on the debt.”
Hurd’s campaign did not respond to a request for comment from MarketWatch.
Recent weakness in the U.S. stock market is likely to persist over the near-term, according to Wall Street’s most bullish strategist, who still thinks the S&P 500 is on a path to a record high this year.
John Stoltzfus, chief investment strategist at Oppenheimer Asset Management Inc., in late July projected the S&P 500 would rise above 4,900 by the end of 2023. That is the highest price target for the large-cap index among 20 Wall Street firms surveyed by MarketWatch in August.
It implies the S&P 500 would rise above its earlier closing record high of 4,796 reached on Jan. 3, 2022 by the end of the year. The path up, however, could get bumpy.
“Bullishness [in the stock market] is relatively high while the Fed remains shy of its inflation target,” said a team of Oppenheimer strategists led by Stoltzfus in a Sunday note. They also said, “we persist in suggesting that investors curb their enthusiasm [in the stock market] for a long rate pause or even a rate cut and instead right-size expectations.”
Expectations that the Federal Reserve is nearing an end to its current interest-rate hiking cycle, as well as optimism around artificial intelligence boosted the U.S. stock market in the first seven months of 2023. However, the rally came to a brief halt in August as investors worried the Fed could be forced to keep rates elevated as a batch of stronger-than-expected economic data and rising oil prices fueled concerns that still-sticky inflation would mean that borrowing costs will stay higher for longer.
Investors should not brush off those pressures, even through the Fed appears to be nearing the end to its current rate-hike cycle, Stoltzfus and his team said. “The stickiness evidenced in food, services, energy and other prices warrants the Fed remaining vigilant along with a potential for one more hike this year and perhaps another next year,” they said.
However, Stoltzfus doesn’t see current headwinds for stocks as something that would prevent the S&P 500 from achieving his team’s new peak target.
Stock-market investors expect this week’s August inflation report to offer more clarity on whether the central bank will continue to ratchet up its fight against inflation. The headline component of the consumer-price index is forecast to accelerate to 0.6% in August from July’s 0.2% gain, while the core measure that strips out volatile food and fuel costs is expected to rise a mild 0.2% from a month earlier, according to a survey of economists by The Wall Street Journal.
Meanwhile, a key Wall Street volatility index also pointed to “some choppiness” in the stock market in the near term to keep investors on their toes, said Stoltzfus. The CBOE Volatility Index VIX,
at a level of 13.82 on Monday, hovered around its 12-month low and traded about 30% below its one-year average level of 19.9, and 37% below its two-year average of 21.88 (see chart below).
Stoltzfus and his team suggest that investors use market weakness to seek out “babies that get thrown out with the bath water” in periods of volatility. They said the S&P 500 Energy Sector XX:SP500.10
looks increasingly attractive as policy makers in the U.S. and abroad strive to contain inflation and manage economic growth.
“We believe that prospects are looking better that the Fed’s success thus far in bringing down the rate of inflation could lead to a [rate] pause next year, thus lessening pressures on economic growth,” the strategists said. An improved economic growth, along with fiscal stimulus from investment in stateside infrastructure projects and stateside chip manufacturing efforts, could contribute to profitability in the energy sector into 2024, the team added.
The Energy Select Sector SPDR Fund XLE,
which is seen as a proxy of the energy sector of the S&P 500, has advanced 3.9% year to date versus a 8.5% increase in the price of the U.S. benchmark West Texas Intermediate crude oil CL00, +0.03%
Oil futures CLV23, +0.03% BRNX23, -0.03%
traded at their highest levels of the year on Monday morning, a week after Russia and Saudi Arabia caught markets off guard with their output cut extension announcements, but they settled modestly lower on Monday afternoon.
Stoltzfus in late July projected the S&P 500 SPX
would rise above its record high by the end of 2023, lifting his year-end price target for the large-cap index to 4,900 from an earlier 4,400 projection from December. It implies a 9.2% advance from where the S&P 500 settled on Monday, at around 4,487.
U.S. stocks finished higher on Monday, boosted by technology shares as Nasdaq Composite COMP
advanced 1.1%. The S&P 500 was up 0.7% and the Dow Jones Industrial Average DJIA
ended 0.3% higher, according to FactSet data.
The Dow and S&P 500 both closed higher on Monday to kick off April with a 4th straight session of gains, after a group of major global oil nations on Sunday announced surprise production cuts. The Dow Jones Industrial Average DJIA, +0.98%
climbed about 326 points, or 1% on Monday, to end near 33,600, according to preliminary FactSet data. The S&P 500 index SPX, +0.37%
gained 0.4%, while its energy component outperformed with a 4.9% climb. The Nasdaq Composite Index COMP, -0.27%
shed 0.3%. Investors piled into energy stocks after the Organization of the Petroleum Exporting Countries and its allies said Sunday they would in May cut production by more than 1 million barrels a day in an effort to support oil-market stability, including with Saudi Arabia slashing its output by 500,000 barrels a day. May WTI oil future contract CLK23, +6.44%
climbed more than 6% to trade above $80 a barrel, the biggest daily gain in more than a year. The Energy Select Sector SPDR Fund XLE, +4.53%
rose 4.6%. The 2-year Treasury yield TMUBMUSD02Y, 3.969%
slumped below 4%, while the 10-year Treasury TMUBMUSD10Y, 3.417%
rate fell to 3.43%, as traders anticipated that higher oil prices could potentially act as a wretch in the Federal Reserve’s plans to bring inflation down to its 2% annual target.
Two energy explorers whose stocks outperformed the broader market in 2022—a monster year for the sector—are slumping this year, but insiders at both companies recently bought up shares.
Shares of Chevron Corp. CVX, +4.86%
fell 0.7% in premarket trading Friday after the oil and gas giant missed fourth-quarter profit expectations, while revenue rose above forecasts. Net income rose to $6.35 billion, or $3.33 a share, from $5.06 billion, or $2.63 a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share of $4.09 was below the FactSet consensus of $4.33. Sales grew 17.3% to $56.47 billion, beating the FactSet consensus of $52.68 billion. Net oil-equivalent production fell 3% to 3.01 million barrels per day, as U.S. production rose 4% but international production dropped 7% due primarily to the end of concessions in Thailand and Indonesia. For Chevron’s upstream business, which includes exploration and production, U.S. earnings declined 11.9% to $2.62 billion while international earnings jumped 31.2% to $2.87 billion. “We delivered record earnings and cash flow in 2022, while increasing investments and growing U.S. production to a company record,” said Chief Executive Mike Wirth. The stock has gained 5.6% over the past three months through Thursday, while the Energy Select Sector SPDR ETF XLE, +3.16%
has tacked on 4.7% and the Dow Jones Industrial Average DJIA, +0.61%
advanced 6.0%.
Harris Kupperman, the president of Praetorian Capital, made a couple of interesting calls heading into 2022. He predicted that stocks of the giant tech-oriented companies that led the bull market would be sold off, and that oil prices would continue to rise through the end of 2022.
The first prediction came true, while the second one for oil prices fizzled. After rising to $130 in March, oil prices have fallen back to where they started the year. Then again, that second prediction still could have made you a lot of money because the share prices of oil companies kept rising anyway.
That leads to a new prediction for 2023 and a related stock screen below.
Here’s a chart showing the movement of front-month contract prices for West Texas Intermediate (WTI) crude oil CL.1, -0.62%
since the end of 2021:
FactSet
Even though Kupperman didn’t get his oil price call right, the energy sector of the S&P 500 SPX, -1.20%
was up 60% for 2022 through Dec. 27, excluding dividends. That is the only one of the 11 S&P 500 sectors to show a gain in 2022. And the energy sector is also cheapest relative to earnings expectations, with a forward price-to-earnings ratio of 9.8, compared with 16.7 for the full S&P 500.
WTI pulled back from its momentary peak at $130.50 in early March, but that didn’t reverse the long-term trend of low capital spending by oil and natural gas producers, which has given investors confidence that supplies will remain tight.
Vicki Hollub, the CEO of Occidental Petroleum Corp. OXY, -3.50%
— the best-performing S&P 500 stock of 2022 — said during a recent interview that there was “no pressure to increase production right now,” citing a $40 per barrel break-even point for oil prices.
At the end of November, these 20 oil companies stood out as reasonable plays for 2023 based on expectations for free-cash-flow generation and dividend payments.
For this next screen, we are only looking at ratings and consensus price targets among analysts polled by FactSet.
There are 23 energy stocks in the S&P 500, and you can invest in that group easily by purchasing shares of the Energy Select SPDR ETF XLE, -2.24%.
We can expand the list of large-cap names by looking at the components of the iShares Global Energy ETF IXC, -1.91%,
which holds all the energy stocks in the S&P 500 plus large players based outside the U.S.
Prices on the tables in this article are in local currencies.
IXC holds 51 stocks. To expand the list for a stock screen, we added the energy stocks in the S&P 400 Mid Cap Index MID, -1.24%
and the S&P Small Cap 600 Index SML, -1.89%
to bring the list up to 91 companies, which we then pared to 83 covered by at least five analysts polled by FactSet.
Here are the 20 companies in the list with at least 75% “buy” or equivalent ratings that have the most upside potential over the next 12 months, based on consensus price targets:
President Joe Biden on Monday will speak about major oil XLE, +0.77%
companies’ record-setting profits, “even as they refuse to help lower prices at the pump for the American people,” the White House announced. Biden’s remarks are scheduled for 4:30 p.m. Eastern in the Roosevelt Room of the White House, and come just over a week before key U.S. midterm elections, in which energy prices and inflation are playing a critical role.
U.S. stocks finished sharply lower Friday, but still booked their best weekly gains in a month, after September jobs data showed an unexpected fall in the unemployment rate that’s anticipated to reinforce the Federal Reserve’s resolve to keep tightening monetary policy.
Investors also weighed a profit warning at a leading microchip maker ahead of next week’s increase in quarterly earnings results.
What happened
The Dow Jones Industrial Average DJIA, -2.11%
fell 630.15 points, or 2.1%, ending at 29,296.79, but off the session low of 29,142.66.
The S&P 500 SPX, -2.80%
dropped 104.86 points, or 2.8%, closing at 3,639.66.
The Nasdaq Composite COMP, -3.80%
shed 420.91 points, or 3.8%, to finish at 10,652.40.
Stocks posted back-to-back losses, trimming weekly gains, but recorded their best weekly gains since Sept. 9, according to Dow Jones Market Data.
Stocks recorded sharp losses Friday after the Labor Department said the U.S. economy added 263,000 jobs in September, while the unemployment rate declined to 3.5% from an August reading of 3.7%. Average hourly earnings rose 0.3%.
Still, a powerful rally earlier in the week boosted all three major stock indexes to weekly gains, a departure from three straight weekly losses, according to Dow Jones Market Data.
“It’s manic. We are all on edge,” said Kent Engelke, chief economic strategist at Capitol Securities Management, of the sharp market swings.
“Any piece of good news is a cause for an explosive rally,” Engelke said by phone. On the flip side, he pegged technology-based trading “in an illiquid and emotional market” as exacerbating Friday’s selloff.
“It’s a reflection that people have re-entered the mind-set that the Fed is going to be raising rates at a rapid clip, probably for longer than what they might have suspected at the start of the week,” said Robert Pavlik, a senior portfolio manager at Dakota Wealth Management, by phone.
Pavlik expects the Fed to keep tightening financial conditions to try to head off inflation. “But once we turn the corner, and the economy slows down, the Fed probably will be more aggressive in cutting rates on the way down.”
In addition, the Fed has been “draining liquidity from the system at a remarkable pace,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income, in a Friday client note, while pointing to an astounding $1.3 trillion decline in the central bank’s balance sheet since the December 2021 peak.
Pavlik at Dakota Wealth said he anticipates the Fed will start slowing interest rate hikes by mid-next year, which likely means continued pressure for the stock market, particularly with a backdrop of big oil-price CL00, +5.37%
gains this week after global crude producers voted to cut monthly production and with the U.S. dollar’s DXY, +0.44%
surge this year against a basket of rival currencies.
U.S. crude oil prices climbed for a fifth day in a row on Friday to settle at $92.64 a barrel, while booking at 16.5% weekly gain.
New York Fed President John Williams said Friday that benchmark interest rates likely need to hit 4.5% over time. The Fed’s policy rate now sits in a 3%-3.25% range, up from a zero-0.25% range a year ago.
The benchmark 10-year Treasury rate TMUBMUSD10Y, 3.889%
climbed to 3.883% Friday, as the key metric used to gauge the affordability of credit for businesses, household and the economy posted 10 straight weeks of gains, according to Dow Jones Market Data.
Investors continued to hope for relief on the inflation front and will be monitoring next week’s release of the September consumer-price index, as well as corporate earnings season as it picks up.
Companies in focus
Twitter Inc. TWTR, -0.43%
shares fell 0.4% Friday after a judge delayed a looming trial between the company and Elon Musk to allow the Tesla Inc. TSLA, -6.32%
CEO more time to close his $44 billion acquisition of the social media platform.
Besides the jobs report, investors weighed a profit warning from microchip maker Advanced Micro Devices Inc.AMD, which said the PC market weakened significantly during the quarter. AMD shares fell 13.9%, and rivals including Nvidia Corp. NVDA and Intel Corp. INTC also closed lower.
U.S. cannabis stocks were choppy Friday, with the AdvisorShares Pure US Cannabis ETF MSOS, -2.80%
ending lower, following steep gains earlier in the week after President Joe Biden said the U.S. would consider de-scheduling cannabis from its current position as a Schedule 1 narcotic under federal law.
—Steven Goldstein contributed reporting to this article
