Russia’s President Vladimir Putin issues a statement in Moscow on June 24, 2023 as Wagner fighters stage rebellion in the biggest threat to Putin’s quarter-century grip on power.
Pavel Bednyakov | AFP | Getty Images
Oil prices rose on Monday after an attempted insurrection in Russia stoked fears that energy supplies would be disrupted by potential unrest in one of the world’s largest oil producer nations.
The armed rebellion by Yevgeny Prigozhin, leader of the Wagner group of mercenary fighters, posed the biggest threat to Vladimir Putin’s 23-year grip on power.
West Texas Intermediate futures rose nearly 1% to just below $70 a barrel in Asia trading, after shedding almost 4% last week. Brent crude was up 0.95%.
West Texas Intermediate
“We have seen in the early market moves that risk off is being played out in play in the commodity markets,” Chris Iggo, AXA’s Chief Investment Officer for Core Investments, told CNBC.
“The fear that any disruption in Russia could lead to further disruptions in the global energy market.”
Wagner mercenaries led by Prigozhin were marching toward Moscow on Saturday, after reportedly taking control of southern city of Rostov. The armed rebellion was abruptly called off on Sunday.
Kremlin spokesman Dmitry Peskov said the criminal charges against Prigozhin were dropped after his forces turned back, state-controlled outlet TASS reported.
“Russian President Vladimir Putin guarantees that Prigozhin will be able to leave Russia for Belarus,” TASS reported.
My top 10 things to watch Thursday, May 4 1. In a widely expected move, the Federal Reserve on Wednesday raised interest rates by 25 basis points — the 10th rate increase in just over a year. Fed Chair Jerome Powell indicated the central bank may pause rate hikes going forward, but did not suggest it would begin cutting anytime soon. The Fed must see weakness in wages to consider pulling back. 2. Regional bank stocks are under pressure, with PacWest Bancorp (PACWP) in focus. Shares of the California lender are down 39% in premarket trading, at just under $4 apiece, and it is reportedly considering a sale. “Leaving rates this high is going to continue this stress,” DoubleLine CEO Jeffrey Gundlach told CNBC. “I believe with a very high degree of probability there’s going to be further regional bank failures .” 3. The debt-ceiling debacle continues , with the U.S. hurtling towards a June 1 deadline by which it could default on its debt obligations. The 2011 debt standoff offers some lessons for investors. 4. Oil prices fell to their lowest level since Dec. 2021 on concerns over demand and an uneven economic recovery in China, before edging up Thursday. West Texas Intermediate crude — the U.S. oil benchmark — slid nearly 11% over the past three sessions and was flat in morning trading, at around $68 a barrel. 5. Club holding Apple (AAPL) is set to report quarterly results after the closing bell Thursday, with analysts predicting the iPhone maker will announce $90 billion in share buybacks and dividends. We also got a potential readthrough from Club name Qualcomm (QCOM) Wednesday when the chipmaker announced a weaker-than-expected forecast for handsets on the back of slower demand in China. 6. A slate of banks on Thursday lower their price targets on Estee Lauder (EL) after shares of the Club holding plunged more than 20% Wednesday on weak forward guidance. Wells Fargo reduces its price target on the prestige beauty name to $225 per share, from $290, while Citi drops its target to $240 a share, from $295. 7. Mizuho lowers its price target on Club stock Emerson Electric (EMR) to $90 a share, from $103, and maintains a neutral rating, noting moderating demand in the discrete manufacturing market. Emerson on Wednesday delivered a solid fiscal second quarter , while raising its full-year outlook. 8. Citi says Yum! Brands ‘ (YUM) post-earnings selloff is a buying opportunity, with the stock closing down nearly 4% on Wednesday. The firm raises its price target on YUM to $172 a share, from $170, while reiterating a buy rating on the stock. 9. Club holding Costco Wholesale ‘s (COST) same-store sales for April rose 1.4%, compared with a 1.1% decline in March, the retailer reported Wednesday. Truist on Thursday lowers its price target on COST to $568 a share, from $571, but maintains a buy rating on the stock for its “extreme value proposition.” 10. Kellogg (K) delivers better-than expected first-quarter results Thursday, with adjusted earnings-per-share coming in at $1.10, compared with analysts’ forecasts for $1 a share. The food manufacturing company also raises its adjusted-basis operating profit growth to be in a range of more than 8% to more than 10%. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
1. In a widely expected move, the Federal Reserve on Wednesday raised interest rates by 25 basis points — the 10th rate increase in just over a year. Fed Chair Jerome Powell indicated the central bank may pause rate hikes going forward, but did not suggest it would begin cutting anytime soon. The Fed must see weakness in wages to consider pulling back.
2. Regional bank stocks are under pressure, with PacWest Bancorp (PACWP) in focus. Shares of the California lender are down 39% in premarket trading, at just under $4 apiece, and it is reportedly considering a sale. “Leaving rates this high is going to continue this stress,” DoubleLine CEO Jeffrey Gundlach told CNBC. “I believe with a very high degree of probability there’s going to be further regional bank failures.”
3. The debt-ceiling debacle continues, with the U.S. hurtling towards a June 1 deadline by which it could default on its debt obligations. The 2011 debt standoff offers some lessons for investors.
4. Oil prices fell to their lowest level since Dec. 2021 on concerns over demand and an uneven economic recovery in China, before edging up Thursday. West Texas Intermediate crude — the U.S. oil benchmark — slid nearly 11% over the past three sessions and was flat in morning trading, at around $68 a barrel.
5. Club holding Apple (AAPL) is set to report quarterly results after the closing bell Thursday, with analysts predicting the iPhone maker will announce $90 billion in share buybacks and dividends. We also got a potential readthrough from Club name Qualcomm (QCOM) Wednesday when the chipmaker announced a weaker-than-expected forecast for handsets on the back of slower demand in China.
6. A slate of banks on Thursday lower their price targets on Estee Lauder (EL) after shares of the Club holding plunged more than 20% Wednesday on weak forward guidance. Wells Fargo reduces its price target on the prestige beauty name to $225 per share, from $290, while Citi drops its target to $240 a share, from $295.
7. Mizuho lowers its price target on Club stock Emerson Electric (EMR) to $90 a share, from $103, and maintains a neutral rating, noting moderating demand in the discrete manufacturing market. Emerson on Wednesday delivered a solid fiscal second quarter, while raising its full-year outlook.
8. Citi says Yum! Brands‘ (YUM) post-earnings selloff is a buying opportunity, with the stock closing down nearly 4% on Wednesday. The firm raises its price target on YUM to $172 a share, from $170, while reiterating a buy rating on the stock.
9. Club holding Costco Wholesale‘s (COST) same-store sales for April rose 1.4%, compared with a 1.1% decline in March, the retailer reported Wednesday. Truist on Thursday lowers its price target on COST to $568 a share, from $571, but maintains a buy rating on the stock for its “extreme value proposition.”
10. Kellogg (K) delivers better-than expected first-quarter results Thursday, with adjusted earnings-per-share coming in at $1.10, compared with analysts’ forecasts for $1 a share. The food manufacturing company also raises its adjusted-basis operating profit growth to be in a range of more than 8% to more than 10%.
(See here for a full list of the stocks in Jim Cramer’s Charitable Trust.)
As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.
THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Another week, another important piece of inflation data for the market to digest. The personal spending and income report, out this coming Friday, has the Federal Reserve’s preferred measure of inflation: the core personal consumption expenditure (PCE) price index. The Fed likes this reading because it looks at changes in consumer behavior, including whether buyers are substituting goods based on prices. In comparison, the consumer price index (CPI), released this past week, only tracks price changes over time. The PCE price index report is even more important following the Fed’s decision this week to raise rates by 25 basis points, as the Street tries to determine the likelihood of the central bank pulling off a soft landing, or if it is hiking us into a recession. It was a positive week for the major averages, despite some midweek volatility driven by comments from Treasury officials. In his remarks after the rate decision, Fed Chair Jerome Powell said a rate cut by year-end was not the committee’s base case, meaning he doesn’t see a rate cut in 2023. Shortly thereafter, Treasury Secretary Janet Yellen, speaking to the Senate Appropriations subcommittee, appeared to double back on the idea that all bank deposits nationwide would be guaranteed by the U.S. government, pushing stocks lower. The PCE price index and other inflation reports face heightened scrutiny in the coming months as the market is becoming more at odds with the Fed’s base case. Consider the CME FedWatch Tool , which tracks market experts’ expectations, shows a pause at the May meeting (88% probability), followed by a cut of 25-50 basis points at the July meeting. The market is now placing the highest likelihood on the U.S. entering 2024 somewhere in the 375-425 basis-point range, well below the current target rate of 475-500. Part of the reason behind the market’s unwillingness to accept the Fed’s commentary likely comes from two key factors. First, there is the view that the Fed is looking at where we are now and not so much where we are headed. The Fed tends to focus on backward-looking macroeconomic updates, while the market looks at real-time commodity price fluctuations, along with forward-looking updates from corporate management teams during earnings calls and investor conferences. Second, there are mounting concerns about the banking sector. While the magnitude of the problem is up for debate, most experts agree that the Silicon Valley Bank blowup and resulting tightening of lending standards by the banks will constrain financial conditions overall. “Financial conditions seem to have tightened, and probably by more than the traditional indexes say. … The question for us though is how significant will that be — what will be the extent of it, and what will be the duration of it,” said Powell. Exactly how many basis points of tightening these stricter lending standards are equivalent to remains to be seen. However, the Fed was certainly not factoring the banking turmoil into its thinking a month ago and as a result, many believe that the Fed will have to reverse course. Put another way, if the banking crisis is worth 100 basis points of tightening, then the Fed may have gone 100 basis points too far without being able to know it. Therefore, the thinking would be that they need to cut by 100 basis point in order to get back on track. Whether Powell or the market proves to be correct will depend entirely on the path of inflation. Prices alone will determine where interest rates will go. No portfolio companies reported earnings this past week and none are on next week’s calendar. However, here are some other earnings and economic numbers to watch in the week ahead: Monday, March 27 Before the bell: BioNTech (BNTX), Carnival (CCL) After the bell: PVH Corp (PVH) Tuesday, March 28 Before the bell: Core & Main (CNM), Elbit Systems (ESLT), IHS (IHS), McCormick & Co (MKC), Walgreens Boots Alliance (WBA) After the bell: Cal-Maine Foods (CALM), Dave & Busters (PLAY), Jefferies Financial (JEF), Lululemon (LULU), Micron (MU) 10 a.m. ET: Consumer Confidence Wednesday, March 29 Before the bell: Cintas (CTAS), Paychex (PAYX) After the bell: Concentrix Corp (CNXC), HB Fuller (FUL), RH (RH) 10 a.m. ET: Pending Home Sales Thursday, March 30 Before the bell: AngioDynamics (ANGO) After the bell: Skillz (SKLZ), BlackBerry Ltd. (BB) 8:30 a.m. ET: Initial Claims 8:30 a.m. ET: Gross Domestic Product; Price Index Friday, March 31 Before the bell: 8:30 a.m. ET: Personal Spending & Income 8:30 a.m. ET: Personal Consumption Expenditures Club trades of the week Despite oversold conditions in the market this past week, as measured by our trusted S & P 500 Short Range Oscillator , we were cautious. We made only one buy : 25 shares of Pioneer Natural Resources (PXD), bringing ownership position in PXD to 175 shares and increasing its portfolio weighting to 1.26% from 1.09%. Sometimes an exogenous event, like a banking crisis, trumps our discipline to buy enthusiastically when the Oscillator flashes oversold. Looking back One day before Wednesday’s Fed rate hike and the dueling bank comments from Powell and Yellen that confused and sunk markets that day, February existing home sales were reported Tuesday to have jumped a much stronger than expected 14.5%. It was the first monthly increase in a year and the largest increase since July 2020. Buyers came back into the housing market as mortgage rates followed bond yields lower on the banking troubles. On Thursday, initial jobless claims for the week ending March 18 came in at 191,000, a decrease of 1,000 from the prior week and below the 197,000 expected. Also Thursday, we learned that in February, new home sales increased 1.1% month over month, to a seasonally adjusted annual rate of 640,000. That was a tad below the 650,000 rate analysts were looking for. As for the broader market this past week, the S & P 500 Communication Services sector led to the upside followed by Energy and Materials. Real Estate led to the downside followed by Utilities. The U.S. dollar index hovered just above 103. Gold traded at nearly $2,000 per ounce. West Texas Intermediate crude prices remained in the upper-$60s per barrel region. The yield on the 10-year Treasury eased back slightly to just under 3.4%. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust is long.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
US Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on the proposed budget request for 2024, on Capitol Hill in Washington, DC, March 16, 2023.
Andrew Caballero-reynolds | AFP | Getty Images
Another week, another important piece of inflation data for the market to digest.
The personal spending and income report, out this coming Friday, has the Federal Reserve’s preferred measure of inflation: the core personal consumption expenditure (PCE) price index. The Fed likes this reading because it looks at changes in consumer behavior, including whether buyers are substituting goods based on prices. In comparison, the consumer price index (CPI), released this past week, only tracks price changes over time.
While oil production in the U.S. will continue its return towards pre-Covid levels, limits on refining capacity and inventory mean it will not grow as much as some hope, according to Pioneer Natural Resources CEO Scott Sheffield.
“We just don’t have that potential to grow U.S. production ever again,” Sheffield told CNBC’s Brian Sullivan on Tuesday at CERAWeek.
To be clear, this doesn’t mean no production growth. Many oil companies have outlined production increases as part of spending plans this year, though oil companies are now in an era of greater fiscal discipline, not shy about signaling they will favor shareholder rewards like stock buybacks over higher production levels. Sheffield expects growth to top out at a level that was already reached pre-pandemic.
“We may get back to 13 million barrels a day,” he said, which would match the record high average recorded in November 2019 by the U.S. Energy Information Administration. But he added it will be at a “very slow pace,” taking two and half to three years to match that previous record level.
For consumers, that means gas prices are more likely to stay within the current range, and pricing risk be tilted to the upside later this year.
According to the EIA, an average of 11.9 million barrels of U.S. crude oil were produced per day in 2022, below the record in 2019 of an average of 12.3 million barrels per day. The EIA is forecasting a new record for this year, but barely higher, at an average of 12.4 million barrels per day.
“We don’t have the refining capacity … if we all add more rigs, service costs will go up another 20%-30%, it takes away free cash flow,” Sheffield said. “And secondly, the industry just doesn’t have the inventory.”
Drilling rigs sit unused on a companies lot located in the Permian Basin area on March 13, 2022 in Odessa, Texas.
Joe Raedle | Getty Images News | Getty Images
The price of a barrel of oil has fluctuated between $75 and $80 this year, well off the $100+ prices seen this time last year. While the level of economic slowdown in the U.S. will be a significant factor as the Fed continues to signal its commitment to higher rates, Sheffield said he sees these current prices as “the bottom,” citing the demand boom expected alongside the reopening of China.
“The question is when do we break out? I predict sometime this summer to break fast $80, on the way to $90,” he said.
Occidental CEO Vicki Hollub told Sullivan at CERAWeek that the $75-$80 range for oil prices is a “sustainable price scenario for the industry to continue to be healthy.”
“I think gas prices at the pump are not so bad at this price, so I think it’s optimal,” she said.
The EIA forecast for gas prices is an average $3.57/gallon this year, down from the $3.97/gallon seen in 2022.
The White House has pushed oil companies to use their record profits to ramp up production instead of on buybacks or increasing dividends.
“My message to the American energy companies is this: You should not be using your profits to buy back stock or for dividends. Not now. Not while a war is raging,” President Joe Biden said at a press conference in October. “You should be using these record-breaking profits to increase production and refining.”
During his State of the Union address in February, Biden noted that “Big Oil just reported record profits…last year, they made $200 billion in the midst of a global energy crisis.”
Biden said U.S. oil majors invested “too little of that profit” to ramp up domestic production to help keep gas prices down. “Instead, they used those record profits to buy back their own stock, rewarding their CEOs and shareholders.”
Occidental, which was the No. 1-performing stock in the S&P 500 in 2022, completed $3 billion in share repurposes last year. In 2023, the company has already authorized a new $3 billion share repurpose authorization and a 38% increase to its dividend.
While Hollub told CNBC’s Sullivan on Monday at CERAWeek that the company does have the ability to produce more oil — it is forecasting 12% production growth this year — “We have a value proposition that includes an active buyback program and also a growing dividend and we always want to make sure we max out our return on capital employed.”
“So, we are very careful with how we structure our capital program on an annual basis to make sure we still have sufficient cash to buy back shares,” Hollub said.
She cited the lack of new oil capacity, which is still near the same level as it was pre-pandemic, and the contraction in the refining sector. “We’re still limited,” she said.
While the industry can balance the supply issues by importing more of the heavy crude handled by U.S. refiners and exporting more of its own light crude, and existing refiners can add capacity, Hollub said it’s not likely that many new refining complexes will be built.
Chevron CEO Mike Wirth told S&P Global vice chairman Daniel Yergin during an on-stage interview at CERAWeek that he has concerns about the exogenous events that can lead to an abrupt supply-demand imbalance in a world which has created new limits on the flow of oil to markets, including the ban on Russia oil in the EU and U.S.
“What concerns me is we have introduced new rigidities into these systems,” Wirth said. “Normally, it’s one big just-in-time delivery machine and demand grows slowly and production grows slowly,” he said. “There’s not a lot of swing capacity or inventory capacity. … The market is tight and the logistics system has been stretched in ways it normally isn’t.”
Hess CEO John Hess said on Tuesday at CERAWeek that “biggest challenge is investment and having policies that encourage that investment.”
“Energy has a supply chain, and the energy industry has a structural deficit in investment,” Hess said. “We have higher interest rates, we have tighter financial markets; all of this makes the mountain steeper.”
