Stocks tumbled this week amidst heightened geopolitical tensions in the Middle East and diminishing expectations for a rate cut by the Federal Reserve.
According to reports from Iran's Fars news agency, explosions were heard near the airport in Isfahan, a central city in the country, though the cause remains unknown. The uncertainty sparked a more than 3% surge in oil prices during Friday's Asia morning trading session, with the global benchmark Brent crude futures surpassing $90 per barrel.
The recent escalation of geopolitical tensions in the Middle East has once again underscored its profound impact on global markets. This has prompted a surge in demand for safe-haven assets, as evidenced by the decline in US stock index futures, Asian stock markets, and US Treasury bond yields, alongside the increase in the price of gold.
The Middle East is one of the world's most significant energy-producing regions, possessing vast reserves of oil and natural gas. Any disruption or volatility in this region's energy supply can lead to price fluctuations in the global energy market. For instance, reflecting on the 1973 oil crisis, the surge in global oil prices not only disrupted energy markets but also triggered inflation and economic recession, causing sustained turmoil in the global economy.
Numerous industries heavily rely on oil and energy, and elevated energy costs directly impact their operational expenses and profitability. This cost pressure may persist until stability is restored in the energy market. For example, industries such as transportation, manufacturing, and aviation exhibit high dependence on energy, and any rise in energy prices can inflate their costs, affecting their profitability and global competitiveness.
Moreover, the rise in energy costs typically exacerbates inflationary pressures. If energy prices continue to climb, businesses may pass these costs onto consumers, leading to price hikes. This poses a challenge for central banks like the Federal Reserve in controlling inflation, as it becomes difficult to stabilize inflation levels.
Consequently, the Fed may face challenges in adjusting its monetary policy. If inflationary pressures intensify, the Fed may be compelled to adopt tighter monetary policies to curb inflation. However, this could negatively impact the economy, as tighter monetary policies may dampen consumer spending and investment, leading to a slowdown in economic activity.
The market downturn largely stems from tempered expectations surrounding the possibility of a rate cut in the near future. Economists and strategists now anticipate the Federal Reserve holding off on any rate adjustments until at least September, with some even entertaining the notion of no cuts at all throughout the year.
Minneapolis Fed President Neel Kashkari, who does not have a vote on rate decisions this year, emphasized the importance of patience for the central bank, suggesting that the first rate cut may not materialize until 2025.
Netflix：No update on new subscribers (Bearish)
Netflix's decision to stop reporting quarterly membership numbers could contribute to increased uncertainty and volatility in the stock price, particularly if investors interpret the move as a sign of underlying challenges facing the company.
Investors rely on quarterly membership numbers and revenue metrics to gauge the company's performance and growth trajectory. Without this data, there will be increased uncertainty surrounding Netflix's subscriber base and revenue generation, which could lead to volatility in the stock price.
Investors may interpret Netflix's decision as a lack of transparency or a signal that the company is facing challenges in sustaining subscriber growth. This could negatively affect investor sentiment towards the stock, leading to a decline in the stock price.
Netflix (NFLX, H4). The fairly wide gap in Friday's market provides an opportunity for a price rebound at least to the previous Resistance at 593.00 but aiming back the another Gap level in 543.80.
Apple: More challenges in China market (Bearish)
Huawei's launch of a new line-up of smartphones, particularly its Pura 70 series, signals the company's continued resurgence in China and its intensified challenge to Apple in the market. This development could potentially have negative implications for Apple's stock.
With Huawei expanding its smartphone offerings and aiming to capture more market share, Apple faces heightened competition in key markets like China. This competition could put pressure on Apple's market share and potentially impact its sales and revenue.
If Huawei's new smartphone models gain traction among consumers, it could result in Apple losing market share to Huawei, particularly in regions where Huawei has a strong presence. A decline in market share could negatively impact Apple's revenue and profitability.
Apple (AAPL, Weekly). Solid correction pattern in Apple is tested by lower Resistance level in 157.00. Waiting for potential rebound for Entry point in 170.00.
Tesla: More selling pressure (Bearish)
Tesla's stock price has become overvalued relative to its underlying fundamentals. This could be due to factors such as high price-to-earnings ratios, elevated market capitalization compared to industry peers, or concerns about the sustainability of Tesla's growth trajectory.
Increasing competition in the electric vehicle market could be a reason for the upcoming selling off. With traditional automakers and new entrants ramping up their EV offerings, we believe that Tesla's market share and competitive position could be at risk.
Tesla (TSLA, Weekly). Slumping down last week, Tesla facing Major Support level in 102.24 for the next 3 - 5 weeks. Waiting for 169.00 for Short-Selling entry level.
Fullerton Markets Research Team
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