Macro

Market Shifts: Exxon Up 21%, Inflation Fears Loom, Yields at 4.4%

Exxon's 21% rise highlights market shift to oil amid geopolitical tensions, inflation concerns re-emerge with strong economic indicators.

By Bill Bullington

4/6, 00:45 EDT
S&P 500
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Key Takeaway

  • Exxon's 21% rise signifies a market shift, with oil stocks benefiting from strong demand and geopolitical tensions.
  • S&P 500 energy sector outperforms tech, indicating a narrative change towards a stronger-than-expected economy boosting oil demand.
  • Recent inflation-sensitive commodity price rises hint at potential economic growth limits and a possible narrative shift back to inflation concerns.

Oil and Economy Drive Market Shifts

Exxon's significant performance, with a 21% rise this year, underscores a pivotal shift in the market narrative, emphasizing the dual impact of strong global economic demand and supply constraints due to geopolitical tensions. The backdrop of these developments includes the ongoing conflicts in Ukraine and the Middle East, notably affecting oil supply dynamics. This scenario has propelled oil stocks, particularly Exxon, to outperform, marking a departure from the previous market focus on falling inflation and its positive effect on growth stocks fueled by artificial intelligence excitement.

Inflation Concerns Re-emerge

Despite the initial sidelining of inflation worries in favor of a robust economic outlook, recent surges in oil, gasoline, copper, and gold prices signal potential inflationary pressures. This resurgence of inflation concerns, driven by strong economic growth, poses a risk of triggering a second wave of inflation. Such a scenario could compel investors to reassess their positions, shifting focus back to inflation management strategies. The U.S. economy's addition of 303,000 jobs in March, surpassing expectations, further complicates the narrative by potentially strengthening the case for sustained inflationary pressures.

Bond Yields and Market Reactions

The narrative around bond yields has seen a dramatic shift, with 10-year Treasury yields spiking to 4.4% in response to robust economic indicators, including strong job growth figures. This shift reflects a broader market recalibration, where higher yields, previously viewed as indicators of strong growth, have started to stoke fears of increased borrowing costs and their potential dampening effect on economic expansion. The market's reaction to these developments underscores the delicate balance investors must navigate between growth optimism and the risks of overheating.

Street Views

  • Shamik Dhar, BNY Mellon Investment Management (Neutral on the market narrative):

    "Markets like relatively simple stories to hang their hat on."