Falling Interest Rates and Weak Stocks Parallel, Crude Oil Rises [4th Week of October] | Market Review (Every Sunday)

[Scenario Assumptions]

<Short-term: Several weeks to several months>

• Military tensions surrounding the US and Iran continue, keeping crude oil prices and transportation costs elevated.

• Inflation concerns intensify through rising energy prices, causing long-term interest rates, particularly in the US, to remain high.

• High interest rates and rising resource prices weigh on corporate earnings and personal consumption, leading to increased selectivity among regions and sectors in the stock market.

• Additionally, we anticipate short-term market volatility driven by policies and statements made with the US midterm elections in mind.

<Medium-term: About 6 months to 1 year>

• If supply stagnation persists, price increases in energy and agricultural products will spread to overall price levels.

• Even with high interest rates, as long as nominal growth and corporate profits are maintained, stock prices may continue to rise, particularly for resource-related stocks and companies with strong pricing power.

• On the other hand, if increased debt burdens cause distortions in corporations, households, or the government, corrections will spread to stocks and commodities as well.

[Reverse Scenario]

• Military tensions ease, and maritime transport and crude oil supply move toward normalization.

• Inflation concerns recede due to lower crude oil prices and transportation costs, leading to a decline in long-term interest rates.

• While lower interest rates support the stock market, energy and some agricultural products will undergo corrections as the price premium due to geopolitical risk is stripped away.

• Alternatively, a scenario where demand itself weakens due to a sharp economic slowdown, causing interest rates, crude oil prices, and stock prices to all fall together, is also possible.

[Structure]

Short-term: Most recent 1 week

• Interest rates: Falling in all countries

• Dollar: Little movement

• Energy

• Precious metals: Significant decline

• Base metals: Mixed

• Agricultural commodities: Falling. Wheat in particular saw a significant decline

• Stocks

Medium-term: Last 3 months

• Interest Rates: Rose. However, the rate of change in yields remained in the single digits %

• Dollar: Little movement

• Energy

  • Crude Oil: Rose

  • Gasoline: Declined

• Precious Metals: Declined

• Base metals: Mixed

• Agricultural commodities: Mixed. Wheat fell significantly

• Stocks

Observation points

1. Falling interest rates and weak stocks parallel
In the short term, while interest rates in various countries have been falling, stock markets globally have also been weak. It is possible that funds have shifted from relatively high-risk stocks to bonds.
However, since we cannot definitively conclude that a shift in funds has occurred based on price movements alone, we will continue to observe the combination of interest rates and stock prices.
2. Crude oil rises, moving differently from other commodities
While stocks and many commodities have been weak, crude oil has risen. Uncertainty regarding the situation in the Middle East and concerns over supply may be among the underlying factors.
However, precious metals have also fallen significantly, so there is variation in the movements, making it difficult to view the market as a whole as a uniform risk-off event.
3. Significant decline in wheat
Wheat has fallen significantly in both the short and medium term. I would like to confirm the supply and demand aspects, including whether the export environment around the Black Sea or geopolitical changes are having an impact.
4. Differences in indices heavily influenced by AI and semiconductors
In the medium term, while the NASDAQ has remained largely flat, the Nikkei 225 has fallen, and South Korean stocks have fallen even further.
The relative resilience of US stocks is visible, but it seems necessary to consider the differences in the constituent stocks and industries of each index.
5. Different movements in Japanese and US small-to-mid-cap stocks
While the Russell index has fallen, the TSE Growth Market index has risen. I will continue to observe whether the interest rate environment, economic outlook, and differences in index composition for each country are the reasons behind this.
6. Will a sense of direction emerge after the midterm elections?
At this point, I have the impression that it is difficult to say there is a clear sense of direction in the market as a whole. I am considering the possibility that the US midterm elections could serve as a turning point, after which trends may begin to clarify.
However, the direction may not necessarily be set just by passing the election, so I would like to continue watching how interest rates, crude oil, and stocks move together.

*This article is a personal record summarizing my own market observations and learning. It is not intended as investment advice.