Markets Gaining Momentum Despite Higher Oil Prices And UAW Strike

Key Takeaways

• Arm IPO Encouraging
• United Auto Workers Targeted Strikes Begin
• Oil Prices Push Higher

Major market indices closed higher on Thursday. A successful IPO by Arm Holdings helped spur investor enthusiasm sending both the S&P 500 and Nasdaq Composite higher by 0.8%. All eleven sectors in the S&P 500 were up on the day. This comes despite a strike by the United Auto Workers (UAW) and surging oil prices.

In what might be a sign of investor appetite for new opportunities, Arm Holdings priced shares at $51, creating a market cap of $60 billion. Shares closed trading on Thursday at $63.59 and are indicated higher this morning by 6%. The success of Arm’s IPO led Instacart to rethink its IPO and will now price shares somewhere between $28 – $30 which would value the company at $10 billion.

In other merger and acquisition news, Byron Allen offered $10 billion to buy ABC TV stations, FX and National Geographic from Disney. Disney is also rumored to have held talks with Nexstar Media about selling the same assets. Shares of Disney are up a little over 3.5% for the week.

Overseas in China, some good economic news suggesting a recovery is underway. Consumer spending and factory output both rose in August while unemployment fell. China has been actively trying to breathe life into their faltering economy. In just the past couple days, China lowered bank reserve requirements for the second time this year and cut short term lending rates.

The weak Chinese economy has hurt multinational companies and a surging dollar hasn’t helped either. The US dollar is at an eight month high which has taken its toll on companies such as Nike
NKE
, UPS and others. Apple
AAPL
reported the strong dollar led to a four percentage point drop in revenue in their latest quarterly report. I’ll be very interested to see how the strong dollar plays into the upcoming season, which will kick off in just about a month.

Overnight, UAW members began targeted strikes at all three major automakers in Michigan, Ohio and Missouri. The union and automakers failed to reach agreement on new contract terms. The strike comes just as prices for automobiles finally began falling. It remains to be seen how this will impact car prices, but it’s a story I’ll be closely watching as it could lead to a drag on the overall U.S. economy.

Another potential drag could be oil prices. Crude oil prices broke $90 a barrel on Thursday before finally settling just under $90. Oil is trading a ten month high and that is leading to higher prices for gas. According to AAA, the average price for a gallon of gas is now $3.87, up from $3.70 a year ago. As I’ve mentioned in the past, if there is one thing that can jump start inflation, it’s oil and therefore, this is something to keep a close eye on as the Federal Reserve Open Market Committee (FOMC) is set to meet next week. Currently, according to the CME, there is a 97% certainty the Fed will leave rates untouched at their meeting.

Finally, a few miscellaneous items. Salesforce
CRM
announced they will be hiring 3,300 workers after laying off employees earlier this year. This is the first large scale hiring announcement I’ve seen this year. Both the S&P 500 and Nasdaq Composite broke above their respective 50 day moving average. Both indices are now above their 21, 50 and 200 day moving average. Then lastly, today is triple witching where options, options on futures and index futures all expire. These are days where you can get some volatility, especially around the open and close of the trading session. However, judging by the VIX, which hit a new year low and is currently well below 13, the market doesn’t seem overly concerned about anything at the moment. As always, I would stick with your investing plans and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.