In just seven days, we've seen one of the most dramatic reversals in oil prices this year. Since June, oil had been on a rampage, but after reaching a peak of $95 the Thursday before last, it plummeted back down to the lows of $80.
This downturn was largely influenced by the government’s weekly report, which indicated an unexpected drop in consumption and demand. For the final week of September, the report displayed a 5% decline compared to the same period the previous year.
Recall the second half of last year when oil prices took a nosedive from $110 to $70. This wasn't a natural market phenomenon; it was a manipulated move as the Biden administration tapped into the SPR (Strategic Petroleum Reserves) for midterm election purposes. It's doubtful we'll see such dramatic fluctuations this year.
Considering driving activity statistics, we find they're nearly at pre-pandemic levels. Electric vehicles, at this stage, should hardly be impacting gasoline demand since they constitute less than one percent of vehicles on the road. Consequently, I firmly believe that any dip in oil prices represents a buying opportunity.
Shifting our focus to equities, September was indeed the cruelest month for the stock market. Historically, this has often been the trend. With the Dow Jones dropping 3.5%, the S&P 500 by 4.9%, and the Nasdaq by 5.8%, all third-quarter gains evaporated.
This market slide wasn't unforeseen. The stretch from August to mid-October is traditionally rife with volatility. Given that the markets found their nadir last October, a 10% correction was always on the cards, especially if one references the July peak.
Rewinding to last year, the market hit rock bottom on October 13th. That same October turned out to be a golden month with the Nasdaq surging by 4%, the S&P 500 by 8%, and the Dow skyrocketing by an impressive 14%.
Historical data shows that since 1950, the S&P 500 has risen in the final three months of the year 80% of the time, with an average increase of 4%. The activity on the last Friday was rather revealing. After the S&P 500 dipped almost one percent, it rebounded, closing up by 1.25%. I'm inclined to believe we've seen the worst of this downward trend.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.