Equities and the Economy

Good morning and happy National Raspberries N’ Cream Day. U.S. stocks ended lower once again yesterday primarily driven but weak earnings, but technicals are also playing a role. Regarding the former, it was the media companies turn to get slammed yesterday (remember this is after Disney, another stock market “general,” lost another 1.79% after losing 9% on Tuesday) with Viacom falling a whopping 14.2% lower leading the sector to its worst two-day loss since the financial crisis. Regarding the latter, you probably haven’t noticed this but I guarantee traders and investors have and that is major support lines of all the major indexes have been broken. For example, the support line of the Russell 2000, one of the broadest measures of equity performance, dating way back to mid-December 2015 was definitively broken in mid-July. This is but just one technical number of numerous that has gone bearish since last month. Investors are taking chips off the table and banking profits thinking one of the longest bull runs in history has come to an end.

Regarding economic data, weekly jobless claims came in at The Street’s expectations of 270,000. Challenger, Gray & Christmas released their job cuts report and at first blush it was disturbingly ill for the number of job cuts soared. However, drilling down into the report the spike was almost solely attributed to massive cuts in the number of defense (government) personnel. “Ex” those cuts the report was far less disconcerting. After all was digested the final numbers were: Dow down a material 121 points (0.7%) to 17,420 marking its 6th straight day of losses and longest losing streak since October. The S&P 500 dropped 16 points (0.8%) to 2,084. The Nasdaq got massacred falling 84 points (1.6%) closing at 5,056. There could be more pain for even with the recent pullback valuations still look frothy. The S&P 500 is stills trading at a 25% premium to its historical median P/E ratio.

This morning Asian markets closed higher with China’s Shanghai up 2.26% but that was because Bloomberg reported that the Chinese government is mandating the buying of $322 billion of stocks to bolster the market. Now there’s a free market if I’ve ever seen one! European markets are all trading lower, about 0.4%, while locally all the U.S. indexes gapped lower on the open with the Dow now trading 66 points lower. The big news this morning came out at 7:30 CDT and that was the Labor Department’s Employment Situation Report. I will comment more on Monday about this but at the 40,000 foot level U.S. employers added 215,000 jobs with the unemployment rate holding steady at a relatively low 5.3%.

Oil

Oil prices remain under pressure with WTI closing 49¢ lower at $44.66 and Brent remaining under the psychologically important $50 at $49.52, down 7¢. Crude prices are only a few dollars from breaking 2015 lows which was $42.03 for WTI and $45.19 for Brent. Goldman Sachs yesterday jumped on the bearish train joining others that oil prices will remain “lower for longer” after forward prices, commodity currencies and energy equities reached levels not seen since 2005. They noted that the rebalancing of supply and demand will likely prove far more difficult than what was previously priced into the market. They added that the time between when shale producers commit capital to the time they get production has dropped from several years to several months and that oil prices need to remain lower for longer to keep capital sidelined.

This morning prices continue to ooze lower with WT down another 28¢. Looks like it’s only a matter of time before we test the previous low.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released it weekly natural gas storage report yesterday showing 32 Bcf was injected into the ground last week. This was materially below market forecasts of a 39 Bcf injection. Prices immediately shot up 9¢ after the release but eased off and settled up 1.5¢ at $2.813. Looking at the storage data for the individual regions (consuming, producing and west) the producing region, Texas, Louisiana and Oklahoma, actually had a net withdrawal for the week. With the hot weather in Texas now and forecasted for next week I expect the same for the next 2 storage reports. The next 10 days are going to be very, very hot in Texas with temperatures in Houston predicted to be at or over 100 degrees the next six days. Ugh! This morning natty is down 2.2¢ at, guess where? $2.791. In that magic range of $2.75 to $2.80.

By the way, ERCOT demand hit another record yesterday at 68,900 MW’s.

Elsewhere

So you’re driving your Tesla down the road and all off a sudden it shuts down abruptly stops. You’re thinking “Great. What happened?” You subsequently find out that absolutely nothing was wrong with your car but instead hackers shut it off. Cybersecurity researchers said they took control of a Tesla Model S and turned it off at low speed noting this was one of six significant flaws found that could allow hackers to take control of the vehicles. The researchers said they decided to hack a Tesla because the company has reputation for understanding software than most automakers. They shut the car down when it was going 5 mph making all the screens go blank, turning the music off and engaging the handbrake lurching it to a stop. This is not the first time a vehicle has been hacked. Fiat Chrysler’s Jeep Cherokee experienced a similar attack last month that prompted the company to recall 1.4 million vehicles in the U.S.

Have a nice weekend and bear in mind that trying times is no excuse to quit trying.