Equities and the Economy

Good morning and happy Cinco de Mayo (cerveza fria, pour favor!). U.S. stocks finished modestly higher yesterday extending Friday’s gains albeit on less than normal volume. The Dow climbed 46 to 18,070, the S&P 500 closed up 6 at 2,114 and the Nasdaq finished at 12 at 5,017.

The only piece of fundamental data of significance that came out yesterday was the Commerce Department’s Factory Orders report for March which were up 2.1% from February, the first increase since July 2104 and better than expectations but offsetting this positive news was that February’s Orders were revised downward. Call it a “push.”

Other than that it was a quiet day so let’s talk about what’s to come this week. We’re still in earnings season and a number of high profile companies will be reporting over the next several days. In addition to that we have ADP’s private payroll data for April coming out tomorrow and then Friday the Big Daddy report which is the Labor Department’s Employment Situation Report for April.

Overnight Japan’s Nikkei recovered at the end of trading to close flat but Hong Kong’s Hang Seng and China’s Shanghai got hit with the latter getting Chernobyled losing 4.06%. Folks, that equates to a 733 point drop on the Dow and I guarantee you would be checking your portfolio this morning. Fortunately the poor performance has not spread to Europe where equities are trading pretty much unchanged which is exactly what’s also going on here in the States right now with the Dow down 10. As mentioned above, we have some major reports coming out tomorrow and Friday and caution prevails. It wouldn’t surprise me if we close lower today because investors and traders are so nervous with P/E ratios at current levels and may cash in some. This continues to be one of the most unloved bull markets in history.

Oil

Oil prices meandered yesterday with WTI off 22¢ closing at $58.93 and Brent did nothing down a penny to $66.45. Let’s move on to today because the market is anything but quiet today. WTI is up $1.70 this morning on the news protestors at the eastern Libyan oil port of Zueitina have resulted in the closing the pipeline to the port. This in turn will result in the closing of several oilfields. This has cut oil exports in half compared to last year and a third of what Libya pumped before 2010. Don’t forget Yemen is basically in a civil war with the two behemoths in the region, Saudi Arabia and Iran, on opposite sides keeping the market on edge.

Oil traders might as well forget doing any research and just throw the dice based upon what influential Saudi Oil Minister Ali Al-Naimi told CNBC today which was “no one can set the price of oil. It’s up to Allah.”

Courtesy of MDA Information Systems LLC

Natural Gas

Last Thursday’s EIA storage report is still impacting the market and making the bears nervous and giving confidence to the bulls the latter taking natty 4.5¢ higher to $2.821 yesterday. Prices have popped nearly 16% in a little more than a week with most of that happening on Thursday, EIA storage day. The weather forecasts show warmer than normal temperatures for the Midwest and northeast over the next couple weeks which based upon feedback from my clients in the regions is overdue and so welcomed. The convertible tops will be down and the golf courses crowded this weekend. This morning is starting out like yesterday with natty down 2.6¢. Let’s see if today is a repeat of yesterday. It seems like anymore it’s only on Thursday’s, EIA day, when we see material moves in natty prices.

Elsewhere

As you regular readers know, I’m a “glass is half full” kind of person. In that vein I thought I’d share the following with you. Paraphrasing from the book of Mssrs. Baumol, Litan and Schramm entitled “Good capitalism, Bad Capitalism and the Economics of Growth and Prosperity”, throughout most of human history:

Life expectancy was about half of what it is today
We could not record voices so now one knows how Shakespeare sounded or how “to be or not to be” was pronounced
The streets of the greatest cities in the world were dark at night
You traveled on land as fast as a horse could gallop
In Europe famines were expected once a decade
Communications were so slow that the Battle of New Orleans took place after the peace treaty had been signed in Europe
In American homes every winter the ink in the inkwells froze

Appreciate your day