9/22 Market Check | Falling Oil Prices and Lower Interest Rates: Will Capital Return to AI/Tech?
9/22 Market Check | Falling Oil Prices and Lower Interest Rates: Will Capital Return to AI/Tech?
In the NY market on September 21, there was a change in the cross-asset movements that had been concerning until now.
S&P 500: 7,764.70 (+1.49%)
NASDAQ: 27,122.09 (+2.26%)
US 10-Year Yield: 4.998% → 4.959%
US 2-Year Yield: 4.7% range
VIX: 14.84
WTI: Significant decline
The NASDAQ hit a new high.
What I consider important this time is not just that stock prices rose.
Oil ↓
US 10-Year Yield ↓
Stock Prices ↑
These three things aligned.
For the past few days, I have viewed the market as “Selective Risk-On,” but I believe it has now improved to a stronger Risk-On state.
However, I do not yet see it as a Goldilocks market.
I will organize my thoughts, including the reasons for this.
1. The “Falling Oil Prices but High Interest Rates” concern from the previous day
What concerned me most in the market over the past few days was the movement where:
“Oil prices are falling, but US interest rates are not.”
When oil prices rise against the backdrop of the Middle East situation, the following flow can be expected:
Higher oil prices
↓
Inflation concerns
↓
Rising US interest rates
↓
Headwinds for Growth/Tech valuations
Conversely, if oil prices fall, it is expected that this flow will reverse.
However, until the previous business day, US interest rates remained high even as oil prices fell.
In other words, the bond market did not view it as:
“If only oil prices fall, the inflation problem will be solved.”
It is possible that they were wary of additional Fed rate hikes or inflationary pressures other than oil.
2. On September 21, that composition changed
This time, there was a change in this relationship.
Oil prices fell further.
At the same time, the US 10-year yield also fell from:
4.998% → 4.959%
And the stock market rose significantly, with:
S&P 500: +1.49%
NASDAQ: +2.26%
In other words, a flow became visible:
Lower oil prices
↓
Easing of inflation concerns
↓
Lower long-term interest rates
↓
Reduced discount rate burden for Growth stocks
↓
Return of capital to AI/Tech
Of course, one cannot determine this causal relationship based on a single day’s price movement.
However, I believe it is significant that the cross-asset inconsistency that existed until the previous business day—Oil ↓ / Rates ↑—has changed to Oil ↓ / 10Y Rates ↓ / Equity ↑.
3. This time, it is not just “indices rising”
Another thing I focused on was the internal movement of the market.
The NASDAQ was up +2.26%.
The semiconductor index also rose significantly.
Furthermore, 8 out of 11 sectors in the S&P 500 rose.
Compared to the state seen until last week where “indices are up, but the market as a whole is not that strong,” this time the gains have broadened.
In particular, the return of capital to AI and semiconductor-related stocks was notable.
Therefore, this time, I am upgrading my view from the previous “Selective Risk-On” to a higher level of Risk-On.
4. Even so, I do not see it as Goldilocks
This is important.
Stock prices rose, oil prices fell, and the 10-year yield also fell.
It looks like a fairly clean Risk-On.
However, there is still one thing that concerns me.
The US 2-year yield.
The US 10-year yield fell below 5%, but the 2-year yield is still in the 4.7% range.
Expectations for additional Fed rate hikes have not completely disappeared.
In other words, I do not think it is correct to view this stock price rise as “stocks rose because the Fed became dovish.”
Rather, “the oil shock has receded, and long-term interest rates have calmed down a bit, making it easier to buy AI/Tech again” fits the current cross-asset situation better.
In other words, the Oil Shock has receded, but Monetary Tightening has not ended. These two need to be considered separately.
5. A slight change in Gold’s movement as well
I am also continuing to watch Gold.
Until now, we have seen a combination that is usually difficult to explain: rising US interest rates, a strong dollar, and rising Gold.
It is possible that geopolitical risks and inflation hedge demand were absorbing the headwind for Gold that is rising interest rates.
This time, stocks became Risk-On, and Gold fell while the dollar was strong.
In other words, there is a slight change in the flow of “buying Gold even if interest rates are high.”
Is this temporary? Or is the hedge demand against geopolitical risks starting to weaken?
I want to continue checking the relationship between interest rates, the dollar, and Gold.
6. How I view the current market
To summarize the current market in one phrase: Oil Relief × Long-Yield Relief × AI Re-Risking.
Until last week, the flow of Middle East situation → Oil → Inflation → US interest rates → Stocks dominated the market.
This time, it is rotating in reverse.
Diplomatic expectations and receding supply concerns → Lower oil prices → Easing of inflation concerns → Lower US 10-year yield → Return of capital to AI/Tech.
However, the Middle East situation itself has not been resolved.
Therefore, I view this not as the “end of the Oil Shock,” but as a “temporary easing of the Oil Shock.”
7. Three things to watch today
In today’s market, I will check three things in particular.
① US 2-Year Yield
This is what I am most concerned about right now.
Long-term interest rates have fallen.
Next, I want to check whether expectations for additional Fed rate hikes remain in short-term interest rates.
If the 2-year yield also falls, the reliability of improved financial conditions will increase further.
Conversely, if the 2-year yield rises again, I believe the Fed tightening risk is still strong.
② WTI
Will the decline in oil prices continue?
This is an important factor supporting the Risk-On of the past few days.
If oil prices rise significantly again, the flow of higher oil prices → inflation concerns → rising interest rates could return.
③ US 10-Year Yield
Currently at 4.959%.
Here, I will watch whether 5% will truly become a wall.
If the 10-year yield remains below 5% and oil prices also remain low, I believe an environment relatively favorable to AI/Tech will continue.
8. Today’s conditional branching
My Base Case for today is: WTI remains low + US 10-year yield below 5% + NASDAQ maintains high range.
With this combination, I see Risk-On continuing.
On the other hand, if WTI rebounds + US 10-year yield breaks 5% again, be careful.
I will consider the possibility that the Oil Shock and Rate Shock have reconnected, and that yesterday’s NASDAQ rise was a short-term relief.
Summary
What was important in the September 21 market was not just that the NASDAQ rose by more than 2%.
More importantly, it was that Oil ↓, 10-year yield ↓, stock prices ↑, and market breadth ↑ all aligned.
The contradiction that existed until the previous business day, “oil is falling, but interest rates are not falling,” has been resolved.
Therefore, I have upgraded my market judgment from Selective Risk-On.
However, the risk of additional Fed rate hikes still remains.
So, what I want to see most today is not “will the NASDAQ rise further?”
Will the conditions that supported the NASDAQ—falling oil prices and lower long-term interest rates—continue today?
And next, will the US 2-year yield also fall? I want to check this.
*This is a personal market analysis based on public information. It does not recommend investment decisions.
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