Brent at $100: Premarket Selloff and the Fed Inflation Test

Grant Calloway

You know, back when I was standing on the trading floor of the Big Board, whenever crude oil started creeping up toward triple digits, you could actually feel the room temp rise a degree or two. Traders would start pacing, staring up at the tape, pulling at their ties. And er, well, here we are again this morning according to Charles Schwab premarket reports. Overnight strikes in the Persian Gulf have pushed Brent crude, the international benchmark, right up to one hundred dollars per barrel. WTI crude is not far behind, surging three point one percent to ninety five dollars and eighty nine cents.

Grant Calloway

And you can see the, the ripple effect right across the equities tape before the opening bell even rings. S and P five hundred futures are down point five eight percent, dropping about forty five points. The Dow Jones Industrial Average futures are taking a much harder hit, off one point one eight percent, or down six hundred and twenty eight points. Meanwhile, the ten year Treasury yield is edging up to four point eight one percent. When energy prices spike like this, it acts as an unannounced tax on the entire economy. It hits retail margins, it eats up transport logistics, and it drags on consumer discretionary spending before a single store open its doors.

Grant Calloway

Taking a look across the broader asset spectrum this morning, the U S Dollar Index is down slightly, dropping point one three percent to ninety eight point six five. The Cboe Volatility Index, the VIX, is spiking four point one three percent up to sixteen point three six as traders scramble for downside protection. And over in digital assets, Bitcoin is ticking up one point four eight percent to seventy nine thousand seven hundred and forty five dollars, as some market participants look for alternative inflation hedges amid geopolitical uncertainty.

Grant Calloway

Now, despite the heavy macro drag, we do have some notable idiosyncratic moves in single stocks today. Meta Platforms is up five percent in early trading after introducing its new Muse personal AI agent late yesterday, which management described as secure, private, and personal. Chemical giant Dow Incorporated jumped three percent following news that it is considering an exit from its twenty billion dollar joint venture with Saudi Aramco. On the retail side, Academy Sports and Outdoors is soaring thirteen percent premarket after blowing past earnings estimates.

Grant Calloway

On the flip side, though, Casey's General Stores is tumbling eleven percent early on. And er, what is fascinating there is that Casey actually beat quarterly earnings per share expectations. But an unchanged outlook, slower inside store sales growth, and rising operating expenses spooked investors. That right there is the crude tax in action. When your fuel and labor costs rise, topping earnings estimates just isn't enough for Wall Street if margins are getting squeezed behind the scenes.

Grant Calloway

I, I remember summer of 2008 like it was yesterday. Crude ran all the way up to one hundred and forty seven dollars a barrel. Everybody on the floor thought the world was ending. But the lesson I took from trading through that wreck is that high energy costs don't break companies equally. The disciplined operators with clean balance sheets survive, while the overleveraged ones get exposed real fast. This tape is tighter than a drum right now, but there is always opportunity buried in the wreckage if you know where to look.

Grant Calloway

That brings us to the core macro debate tearing Wall Street apart today, the classic bull versus bear showdown ahead of crucial economic data. On one side, the bulls point to the latest Schwab Trading Activity Index, or STAX, which fell to fifty seven point five zero in August from July multi year high of fifty nine point eight zero. That shows retail investors aren't fleeing the market in panic. Instead, they are rebalancing, taking profits in high beta software stocks and rotating into defensive sectors like industrials, utilities, and real estate.

Grant Calloway

Furthermore, historical data from the Schwab Center for Financial Research shows that during periods where the Federal Reserve tightens interest rates at a slow, gradual pace, the S and P five hundred has historically gained an average of ten point five percent in the year following the start of the cycle. Compare that to fast tightening cycles, like what we saw back in 2022, where stocks dropped an average of three point six percent. So the bulls argue that if the Fed takes an elevator approach, moving in small, measured steps, equities can easily digest it.

Grant Calloway

But er, the bears aren't buying that sunny narrative, not with Brent crude sitting at one hundred dollars. They argue that sustained energy inflation, combined with tomorrow morning August Producer Price Index report, will force Chairman Kevin Warsh and the Fed to stay aggressive. Consensus estimates for tomorrow PPI stand at zero point four percent monthly headline growth, with core PPI expected at zero point two percent. On a year over year basis, core PPI is projected to rise to four point six percent from four point two percent in July, while headline PPI is expected to climb to five point three percent. If those figures overshoot expectations, any hope of a gentle Fed path goes right out the window.

Grant Calloway

Before we break down what is on deck for today, a quick note on how I stay ahead of these rapid premarket shifts. If you are struggling to digest hundreds of pages of market research, filings, and earnings transcripts before the opening bell, check out Jellypod at jellypod.com. Jellypod converts lengthy financial research and news into custom daily audio briefs tailored to your portfolio, so you can listen on your morning walk or commute. That is jellypod.com.

Grant Calloway

Looking at the calendar for the rest of today, all eyes are on the U S Treasury early this afternoon for the auction of ten year notes, especially after yesterday three year auction saw solid demand. Treasury is also beginning larger liquidity buybacks today aimed at easing yield pressures. Out in California, Apple holds its major hardware showcase at ten a m Pacific time, where analysts are watching for potential announcements around a foldable iPhone or a touch screen MacBook.

Grant Calloway

Tomorrow morning at eight thirty a m Eastern time, the Producer Price Index hits the tape, followed by the Consumer Price Index on Friday. These reports feed directly into the Personal Consumption Expenditures price index, the Fed absolute favorite inflation gauge, ahead of next week policy meeting. As an old floor trader, my advice today is simple: keep your position sizing tight, respect the energy spike, and don't get overextended before the inflation data lands.

Grant Calloway

Alright, that is the tape for this morning. Good trading out there, and talk soon. This podcast is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.