Market Overview:
U.S. stocks recovered slightly on Friday but ended up down for the week as anxiety over the Federal Reserve turning more hawkish impacted investor sentiment. For the week, the Dow was down 0.8%, the S&P 500 finished 1.3% lower and the Nasdaq Composite fell 1.9%. With the latest jump in oil prices in the past few days driven by longer-than-expected production cuts by key oil nations Saudi Arabia and Russia, along with confounding labor market data in the form of initial jobless claims falling for a fourth straight week, all eyes are now on next Wednesday's consumer price index (CPI) report for further clarity on the Fed's future monetary policy actions.
News:
Apple: Apple's shares experienced a 3% drop on Thursday, following a 4% decline the previous day, in response to reports suggesting that Chinese government employees might be prohibited from using iPhones. These reported restrictions, have raised concerns that Apple may become entangled in international tensions between the United States and China. Greater China, including Hong Kong and Taiwan, accounts for 18% of Apple's total revenue, making it the company's third-largest market and where most of its products are assembled. While a government ban on iPhones among its employees could potentially reduce iPhone sales in China by up to 5%, there is a larger concern that it might encourage everyday citizens to opt for Chinese-made electronic alternatives, aligning with a broader Chinese government push to promote domestic technology usage. Furthermore, Apple faces increased competition from Huawei, which has launched the Mate 60 Pro in China, sparking significant interest. Apple's CEO, Tim Cook, noted in recent earnings calls that more users in China were switching from Android to iPhones, attributing this trend to Apple's ecosystem and user experience. However, the threat of government bans and increased competition from Huawei pose challenges to Apple's growth prospects in this crucial market.
Oil prices rise to 9-month high: On Friday oil prices climbed nearly 1% to reach their highest level in nine months, driven by two main factors: rising U.S. diesel prices and concerns about limited oil supplies. Saudi Arabia and Russia recently decided to continue their cuts in oil production, totaling 1.3 million barrels per day, which added to worries about a tightening global oil market. Brent crude settled at $90.65 a barrel, while U.S. West Texas Intermediate (WTI) crude settled at $87.51. This marks the highest close for Brent since November and for WTI since September. The market sentiment has been primarily influenced by these supply-related factors, as traders anticipate that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, like Russia, will keep oil markets tight throughout the upcoming winter. On the flip side, there are still concerns about China's oil demand, given its slow recovery from the pandemic and underwhelming stimulus efforts. Additionally, the market is keeping a close eye on decisions by central banks in the U.S. and Europe regarding interest rate hikes, as such actions can impact economic growth and subsequently oil demand. Rising oil prices positively affected energy sector stocks. During the week Exxon Mobil Corp gained 3%, Chevron Corporation added 2.8%, and the Energy Select Sector SPDR Fund (Ticker: XLE), which covers the energy sector, finished 2.35% higher.
Warner Bros. Discovery slashes outlook: Warner Bros. Discovery is getting ready for the impact of ongoing strikes by writers and actors, which have lasted more than 100 days and might continue until the end of this year. The company adjusted its financial expectations, estimating that the strikes will hurt its earnings by $300 million to $500 million. This means its adjusted earnings for the year are expected to be between $10.5 billion and $11 billion. Warner Bros. Discovery, which owns a big movie and TV studio and many pay TV networks, hopes the strikes will end soon but can't predict when. The strikes have also affected the release dates of some films. Despite the strike-related challenges, the company raised its free cash flow expectations to at least $5 billion, partly due to the success of the movie "Barbie." WBD was down more than 11% during the week.
Weekly ETF:
The United States Oil Fund (USO) is an exchange-traded fund (ETF) designed to track the price movements of crude oil. It offers investors an easy way to gain exposure to the oil market without directly owning oil futures contracts or physical oil assets. USO primarily invests in short-term futures contracts on West Texas Intermediate (WTI) crude oil, which is the benchmark for oil prices in the United States. As the price of WTI crude oil fluctuates, the value of USO shares also changes, allowing investors to speculate on or hedge against oil price movements. It's important to note that USO is a financial instrument and does not provide ownership of physical oil.
The week ahead:
Oracle (ORCL) and Adobe (ADBE) are the most notable earnings reports next week. Key events include Apple's (AAPL) Wonderlust iPhone reveal, the Salesforce (NYSE:CRM) Dreamforce Conference. The start of the Google (GOOG) monopoly trial will also capture plenty of headlines. The trial marks the first major tech antimonopoly case in the U.S. in several decades. Chip designer Arm (ARM) is expected to price its IPO and start trading next week. The IPO could be the largest since Rivian Automotive's (RIVN) $13.7B offering in November.
