Higher oil prices engineered by Saudi Arabia (as replicated by Russia), are inhibitors of growth, and while not opposed by Washington, since they seem to want higher retail gasoline prices to stimulate the shift to alternative vehicles, even though EV's are cost-prohibitive for most and the range anxiety will prevail for some time (hence that benefits AEHR as newer inverters and processors also arrive and require burn-in testing).

Freepik

So while Riyadh has more influence on inflation than Washington in this way, the Fed generally doesn't grasp that, and thinks they do. You have what in a sense is 'Washington fighting Washington' if the Fed wants lower prices as the White House gives lip service to that, but actually wants high oil prices. I really don't mean this to be political, but thought I recognized that when they'd failed to buy oil for the Strategic Petroleum Reserve when it dipped into the 60's briefly, and I was convinced it would go back up to 80 or so, hence couldn't figure why they weren't refilling SPR then. Because they prefer paying more?

At the moment oil is an inhibitor of market action, due to inflationary aspects. If we do manage to get a turn higher, strong oil stocks contribute to strength.

Anyway, while financial media debates overweight-underweight equities in the typically heavy month of September, it's the stronger dollar and higher oil in my mind that make the difference here, not the valuation debates and all that.

The San Francisco Fed released a report saying '12 years of slower growth', from higher interest rates is being reported as 'bearish'. I think it's bullish since it (sort of) reveals a recognition of counter-productive aspects of what the Fed has done 'to' America, rather than 'for' America (too low then too high too long as I've contended all along would be the 'monetary policy evolution).

Market-X-ray: 

Market sort of neutral after the holiday, as really needs to get a rally going in S&P if the oil and dollar price moves aren't hamstringing rally potential altogether. So far they do inhibit it and we'll see about Wednesday as time is running-out for an intraweek post-holiday rebound.

Primarily, the crude oil production cuts by Saudi Arabia, Russia (by inference the OPEC+ alliance), have succeeded in keeping oil prices up, but have also had some negative effects on economic growth prospects, and basic inflation.

Now, while oil supply is plentiful and the supply-demand dynamics seem very normal in the USA at least, remember it's hurricane season and you're in the 80's for West Texas intermediate, before any severe storm threatens the Gulf drilling platforms. I'm more concerned this month about the Gulf of Mexico not the Persian Gulf, and one severe storm (triggering evacuations and a platform shutdown) would thrust WTI into the 90's or more, and that kills discretionary spending flexibility for much of America. The Fed needs to grasp implications, although of course that would be temporary, although defensive for 'data'.

I guess if oil goes even higher and consumers 'quit spending', the Fed will not hike rates and proclaim victory somehow...or at least pause. Regardless of today's Waller comments of another hike. Bad news=good news for stocks.

Bottom-line: 

There are have and have not's, and more so as oil surges along with high interest rates. Goldman talks of only a 15% recession risk, sure, we already had one and for those 'flat on their back' (a sad percentage of folks), it never ended. (Mostly because of impossibly high living costs for a majority.)

Small-mid-cap stocks were thrown out, struggling to recover, and generally of course are not perceived as the safer way to go. But now perhaps so. Erosion yes, but plunges not so much as big caps that remain very, very expensive.

I won't get into the multiple valuation issue, which varies as dramatically. What we are looking at are holding remaining (or entire) portions of larger stocks as our 'core' investment and assembling a selection of possibly interesting small stocks, with at least potential of being innovative, disruptive, or...profitable.

Wednesday rebound efforts expected, but limited where Indexes are constrained by oil prices and ridiculously uninformed hawkish Fed speak here and there.

More By This Author:

Market Briefing For Tuesday, Sept. 5
Market Briefing For Thursday, Aug. 31
Market Briefing For Wednesday, Aug. 30