What’s News in Markets: Refiners Cash In, AI Stocks Wobble, Homebuilder Blues

Key takeaways

The S&P and NASDAQ reached new highs mainly due to big tech and AI-driven gains.
Despite market highs, most industry groups in the S&P have declined since August, signaling underlying weakness.
Rising bond yields, with the 10-year Treasury reaching a 20-year high, are increasing borrowing costs and putting pressure on sectors like banks and real estate.
The energy sector is profiting from global supply disruptions and a widening crack spread, with crude oil and refined fuel prices rising due to geopolitical tensions.
Refiners like Valero, Marathon, and Phillips are expected to report record profits, doubling their share prices this year.
Regulatory investigations have caused stocks in the AI and industrial sectors, including Caterpillar and chipmakers, to fall after previously surging.
A significant rise in mortgage rates to 7.4% is weakening demand in the housing market, leading to price cuts and declining builder stocks.

Summary

Market Overview: Gains Amid Underlying Struggles

The episode begins with an overview of the week's market movements, highlighting that the S&P and NASDAQ both reached new closing highs primarily driven by big tech companies benefiting from the AI boom. Despite these gains, the host notes that beneath the surface, most industry groups in the S&P have declined since August, indicating underlying vulnerabilities. Additionally, a significant boost in bond yields, with the 10-year Treasury reaching its highest level in over two decades, is increasing borrowing costs and exerting pressure on sectors like banking and real estate. The NASDAQ gained a modest 0.6%, the S&P increased by 1.2%, and the Dow rose by 0.9%, illustrating mixed signals in the market.

Energy Sector Exploits Crude Oil Price Surge

The episode delves into the energy sector, which performed exceptionally well this week due to geopolitical tensions and supply disruptions caused by attacks in Iran, Ukraine, Russia, and the Middle East. These events led to a global fuel shortage, pushing up gasoline and diesel prices faster than crude oil itself, which rose 2.4% to $104.72 per barrel. U.S. refineries benefited from a widening crack spread—the difference between crude costs and refined fuel prices—allowing them to report record third-quarter profits. Valero Energy, Marathon Petroleum, and Phillips 66 saw their stock prices more than double this year, with Valero rising over 6.5%, Marathon 7.4%, and Phillips 5%.

Weakness in AI and Industrial Stocks Amid Regulatory Concerns

The episode highlights a reversal for stocks benefiting from AI infrastructure. Caterpillar, which had surged due to demand for its generators used in powering data centers, saw its shares fall over 5% after investigations into its competitive practices by the Federal Trade Commission and the Agriculture Department. These inquiries stem from complaints from farmers, and they led to a broader decline in equipment stocks, with Caterpillar's rivals Deer and Agco falling nearly 10%. Additionally, chipmakers Nvidia, AMD, and Micron also declined, amid reports of lower-than-expected revenue for OpenAI, raising questions about future investment in infrastructure for AI technology.

Rising Mortgage Rates Pressure Housing Market

The focus then shifts to the housing market, where the average interest rate on a 30-year fixed mortgage has climbed to 7.4%, the highest in nearly three years. This increase is making home borrowing more expensive, dampening demand for new homes and forcing builders to offer incentives to attract buyers. Sellers are also responding by reducing prices; Redfin reports that 21% of sellers cut asking prices in a recent four-week period. Homebuilder ETFs declined about 2%, with specific stocks like D.R. Horton, Lenar, and Pulte Group falling between 0.1% and 4%, reflecting a challenging environment for the housing sector due to soaring mortgage costs.

Show notes

Which companies are cashing in as wars shrink global fuel supply? And why are AI trade favorites suddenly lower? Plus, how are homebuilders coping with soaring mortgage costs? Host Imani Moise discusses the biggest stock moves of the week and the news that drove them.

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