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“Crude oil will never trade back above $44 ‘in my lifetime.” Dennis Gartman - 2016
"Hate to say it, but we need to increase oil & gas output immediately. Extraordinary times demand extraordinary measures." - Elon Musk - 2022
These two contrasting quotes from two distinct personalities almost sums up the roller coaster ride oil prices have had until now.
Less than two years ago, traders were paying people to buy oil off their hands, and now people are paying $100+ per barrel!
Oil prices have regained center stage as price per barrel briefly hit $130 in response to the prevailing Russia-Ukraine crisis.
US equities finished lower as oil prices surge. The DJIA was down 1.3% for the week, the S&P 500 by 1.3%, and the Nasdaq Composite plunged 2.8%.
For the year, the DJIA is at - 7.49%, the S&P 500 at -9.18%, and the Nasdaq at -14.90%.
Amidst the war uncertainty, the interest rate fears played second fiddle in shaping the market sentiments last week.
Until last week, markets had priced in a 50 basis point increase in interest rates in March 2020.
Fed chief Jerome Powel provided some relief by stating that he would stick with a quarter-point increase in the federal funds rate in March.
He also stated that it was “too early to say” if Russia’s invasion would change the Fed’s policy over the medium term but that policymakers would “move carefully.”
In response to this comment, some traders are hopeful of no hike in March.
European equities bore the severe brunt of the War as the Euro STOXX 600 fell 6.46%. Other major European indices also tumbled by more than 10%, while the UK FTSE was down by 6.7%
Despite refraining from joining the west in sanctioning Russia, Chinese equities were down for the week as the CSI 300 Index was down by 1.7% and the Shanghai Composite Index dipped 0.1%.
The real estate sector in China continues to stumble as Western rating agencies downgraded credit ratings of struggling real estate companies.
Indian equities also fell sharply on global cues, firming oil prices and persistent selling by FPIs.
The Sensex lost 2.73% for the week, while the Nifty was down by 2.48%.
Black swans tend to pushback bull runs whenever they look invincible, which is precisely what is happening now.
While the near-term outlook largely depends on how this war crisis develops, historical data suggests that black swans have a short life span.
As tempting as it could be to sell now, it would be wise to HODL(Hold on to Dear Life), as some of the worst days in the market are typically accompanied by the best days.
In the last ten years, we have seen the S&P 500 rally 87% of the time after a daily decline of 1.5% or more. We have also noticed since 2014; markets recover lost ground all the five times it dropped by more than 10% within four months.
Investors with long-term horizons and flexible risk appetites can use the declines to buy, while those with short and medium-term horizons can use the relief rallies to trim risk and diversify.
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