4 hours ago - Business
Oil and interest rates dominated the third quarter
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Energy stocks were some of the best-performing U.S. assets to own in the just-ended third quarter, as inflationary pressures related to the Iran war and irrepressible U.S. growth established themselves as key price-drivers.
Why it matters: The performance of oil-and-gas drillers, refiners and retailers was crucial to keeping broader indexes such as the S&P 500 in the black (+2%) during the three months that ended Wednesday.
- For the year so far, the S&P is up 11.8%.
Zoom out: Renewed pressure from oil prices—or perhaps more specifically diesel-fuel prices — related to the Iran war were a dominant theme during the quarter.
- That nudged the market and the Fed toward higher interest rates.
- But those higher rates slammed rate-sensitive parts of the market like small caps (that's the Russell 2000 index) — which tend to have less financial flexibility, and more floating-rate debt.
- So-called momentum stocks — investor favorites for their propensity to go up, rather than fundamentals like revenue and profit — also got hit, as they have significant overlap with high growth shares that tend to suffer from higher rates.
- Of course, rising interest rates also hammered bond markets. The broad U.S. bond market endured its worst quarter since back in 2022, when the Fed was hustling to lift rates to quell surging inflation.
The bottom line: Oil and rates giveth, and taketh away.
