UPDATE

🌤️ Happy Tuesday

Good morning. It’s crazy to think we’re now into February. Looking back, we hope that the first month of 2024 was a good kickoff to the year and that you can use (and build on) your momentum going forward. 

We also want to thank you for the feedback on our new Energy & Commodities section. By tracking gas prices and other supply chain shifts, we’re able to report on more human-centric metrics that affect you daily. 

If you’ve enjoyed reading, all we ask is that you use the share buttons above to send this article to a friend. 

Read time: 3 minutes

WEEK IN REVIEW

📈 Market Performance

S&P 500 (5-day), via Google Finance

Since two weeks ago, the S&P 500 has continued to push higher and nearly approached the 5,000-point mark over the weekend. As earnings season has begun, many industries and their associated companies have started to report better-than-expected earnings and revenue, which is helping fuel the rally. 

• Last week, for example, several big tech stocks including Apple, Google, Microsoft, and Amazon reported earnings. Most of these companies beat revenue and earnings per share (EPS) estimates, which fueled hopes that the index would cross 5,000 points.

Remember, despite the S&P comprising 500 of the top US companies, they aren't all weighted the same. Tech stocks like Apple and Microsoft are favored heavily in the index, and a stock boost to these companies always has very welcome downstream effects.

Ultimately, the good news for these FAANG companies didn’t quite push the S&P over the mark last week, but the market is still holding strong.

• It’s also worth noting that stock performance can at times be a feedback loop. Investor spirits are high right now after the record-breaking performance. Short-term expectations that the market will rise can fuel that trend.

🏦 Where Does This Leave Interest Rates?

With the stock market success, and individual tech stocks beating out expectations, it’s tempting to think that the financial world is roses and rainbows right now. 

• The Fed is still focused on the mission of bringing inflation down to an ideal level, and the end of 2023 showed that progress on that front may have stalled.

December 2023 inflation was marginally higher than November’s, meaning that there is still room to improve before the pressure of interest rates can be eased. Per the US Inflation Calculator, 12/2023 was about 3.4% inflation up from 3.1%.

For a while now, investors have wanted the Fed to signal that interest rates may be coming down. Remember, the higher the interest rates are, the less appeal stocks have, since bonds and other assets can more safely pay an attractive yield.

• Over the weekend, Fed Chairman Jerome Powell signaled that a rate cut is probably not around the corner, as “we want to be more confident that inflation is moving down." (Source: CNN)

ENERGY & COMMODITIES

📊 Gas Price Breakdown

Secretary Blinken and Foreign Minister Mohammed bin Abdulrahman Al Thani of Qatar, via Rawpixel

Over the last two weeks, we've reported on gas prices in a more surface-level way, by providing comparative prices between the current and prior week.

• This is helpful in understanding where prices have been, but it doesn't contextualize what's causing these changes, and what could change them going forward.

• Let's dive deeper into the cost breakdown of gas to find what factors most affect what we pay at the pump.

The largest indicator of what gas prices will be domestically is the globally tracked price of crude oil. This refers to the raw material extracted from the ground, and it's something that is commonly traded (the Dow Jones Commodity Index Crude Oil tracks the value).

• Trade agreements with nations like Qatar, drilling contracts, and bilateral relations all make up the cost of crude oil. That's why events like the Russia-Ukraine war and shipping attacks in the Middle East affect these prices.

From crude oil, we get to transportation and refining which is often location-dependent. States like Texas and Florida are coastal and they have large refinery operations which means gas can easily get to the pump, unlike a midwestern state that requires cross-country shipments.

Finally, there are gas taxes which may be more or less depending on the state. It's good to keep in mind, however, that gas is also taxed at the federal level.

⛽️ Gas Prices Take A Turn

Pine Blend Oil Refinery in Rosemount by Tom Fisk, via Pexels

Using the AAA gas prices tracker, this week’s average gallon of gas in the US is $3.15, which is going up from the previous two weeks. The cause for this potentially stems from the fact that the oil composition is actually changing.

• Crude oil, as we mentioned above, is responsible for a majority of gas price fluctuation, but crude oil prices have been dropping in recent weeks.

• What usually happens around this time of year is that the processing done during refinement is tweaked to allow the gas to better perform during the summer months.

That’s right, the gas in your car during the summer and winter is slightly different to help with efficiency. Per KXII, there can be a bump in price during this transition before everything equalizes.

🥛 MARK IT. Milk Index

This week, we wanted to introduce another metric, and it might seem strange at first: milk. Milk (and related dairy products) are some of the most consumed food items by Americans, with a 2023 chart by the Economic Research Service finding that Americans’ milk per capita consumption was around 134 pounds annually. Because of this, tracking milk prices can be a useful metric when pinpointing where inflation is hitting Americans hardest. 

Using data from the US Department of Agriculture (USDA), we found the average prices for a gallon of whole milk from a cross-section of US cities. These prices are updated every month and our index is tracking the average price of these cities on the graph below:

MARK IT. Whole Milk Index, via MARK IT. using USDA data

So how are milk prices calculated? Price per gallon may only fluctuate a few cents month-over-month, but several factors make up the price that we pay at the grocery store. Taxes, transportation costs, and prices set by dairy producers are among some of the factors that determine price per gallon. 

We’ll continue to update our Milk Index every month using the latest data from the USDA and compare the price against the previous 12 months to see where prices are trending. For this section, we’ll be tracking the price of a gallon of whole milk.

ONE MORE THING

🤝 Keep in Touch

• For general announcements or updates on what we're working on, follow Abbas on Twitter 👉 @RealAbbasAkhtar

• Also, we want to hear your feedback! Send any comments or suggestions to [email protected]

Thanks again for reading!

Nothing MARK IT. publishes constitutes professional and/or financial advice, nor does any information published by MARK IT. constitute a comprehensive or complete statement of the matters discussed.