Drone strike causes oil prices to jump
Market Recap Week ending 9.20.19
Geopolitical tensions between the US, Saudi Arabia, and Iran escalated early last week when a drone strike hit some of the most productive oil assets within Saudi Arabia. The attack initially sent Oil futures up nearly 20% and sent shockwaves through the entire energy sector. Later in the week, oil gave back a good chunk of the gains on constructive production comments from the Saudi oil minister. Additionally, it appeared that a retaliatory military strike, for the time being, was not likely.
The Federal Reserve cut the fed funds rate by 25 basis points last week, which was widely expected. There were however 3 Fed Presidents that disagreed with the decision. Boston Fed President, Eric Rosengren, and Kansas City Fed President, Esther George, voted to keep the fed funds rate unchanged. On the other hand, St. Louis Fed President, James Bullard voted for a 50-basis point cut to the rate. The Dot plot which maps out each president's view of the Fed Funds in the future indicated that 7 of the 17 Presidents expect another cut in 2019. However, the median forecast suggests no more cuts in 2019 and none in 2020.
The markets were rather subdued for most of the week despite the geopolitical tensions and the Federal Reserve decision. The S&P 500 lost -0.51% on the week while the Dow gave up -1.04%, the Nasdaq shed -0.72%, and the Russell lost -1.16%. US Treasuries were also relatively quiet compared to the prior week's movement. The 2-year note yield lost nine basis points to close at 1.70%, and the 10-year bond yield fell thirteen basis points to close at 1.77%. Gold gained a bit last week picking up just over $7 an Oz to close at $1507.60. Oil, as I mentioned, opened the week extremely strong but ended the week up 7% to close at $58.72 a barrel. There were no changes to our models last week.
Darren Leavitt, CFA Portfolio Manager & Sr. Market Analyst