Equities and the Economy

HOORAY! Finally a good day for equities. No, check that. A great day! Following big gains in Asia equities, U.S. stocks closed out Q3 hugely higher with the Dow gaining a hefty 236 points, 1.47%, closing at 16,285, the S&P 500 climbing 36, 1.91%, to 1,920 and the Nasdaq led all the indexes closing up a whopping 103, 2.27%, at 4,620. The severely battered biotechnology sector, which was down 24% from its July peak, popped 4.8%. The rise in Asian equities, that spurred the buying of European and U.S. stocks, was driven by the Chinese. The government there has and is doing everything possible to stimulate the economy. They previously lowered bank reserve requirements and interest rates. Yesterday they took additional steps of lowering the down payment for first time home buyers from 30% to 25% (still a lot more than here in the U.S. not so many years ago when zero down payment was possible!). Yesterday they also cut the sales tax on the sale of small cars by 50%.

Ok, now for the sobering news. Even with yesterday’s gains Q3 2015 was the worst quarter for U.S. equities in four years. The Dow was down 1.5% for the month and 7.6% for the quarter. The S&P lost 2.6% in September and is off 6.9% for the quarter. The big losers in this index were energy, down 18%, and materials, off 17%, for Q3.

Fundamentally it was a mixed bad. On the positive side the payroll processor ADP reported better than expected job for September stating private employers added 200,000 jobs in the month, 10,000 more than economists’ estimates. Mitigating the euphoria surrounding that number was that ADP revised its August figure marginally downward. You regular readers know I place a lot of emphasis on revisions to data for revisions are positive in a growing economy and vice versa. On the not-so-good side MNI Indicators reported their Chicago PMI fell to 48.7 in September from 54.4 in August. Remember, anything below 50 indicates contraction rather than growth.

This morning the Asian markets saw some follow through on yesterday’s gains closing up between 0.48% and 1.92%. The good will is not spreading to Europe where the major bourses there are trading mixed. Here in the U.S. investors are taking a wait and see attitude with Dow down 70. Today could very well be a lackluster day with caution prevailing ahead of tomorrow morning’s big Unemployment Situation Report for September.

Oil

Oil prices continue to meander of late with WTI yesterday closing down 14¢ at $45.09 while Brent closed the exact same amount higher at $48.37. Similar to equities, it’s been a tough month for oil and gas producers with WTI prices falling 8.4% in September and a crushing 24% for Q3. As I’ve stated previously, for the last month WTI has waffled around $45. That might be changing for technically the WTI price is getting squeezed at the apex of a pennant formation. As I’ve stated previously, my bet is prices will trade higher, but I wouldn’t bet the farm on it. This morning we may indeed be getting that breakout with WTI trading up $1.41, and of note, it’s really not getting help from the equities market. Additionally, prices are up despite a very bearish DOE crude and products report yesterday noting aggregate inventories (crude oil, gasoline, distillates) were up 7.0 million barrels last week with expectations of a 3.2 million barrel decline! So what happened. How about Russia commencing bombing Syria?! Now this was expected but what we now have is both the U.S. and now Russia running bombing raids in Syria. I don’t need to tell you this is dangerous, and hence you’re seeing an increase in the “fear premium” in oil prices.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices continue to bleed lower with the November contract closing down 6.2¢ yesterday at $2.524. Mild weather is taking its toll on natty prices resulting in a heavy yoke for the bull to wield. Prompt month prices have now fallen nearly 30¢ in less than a month to a 5 month low and are within 6¢ of this spring’s three year low at $2.443. Winter’s coming folks. There’s a saying in trading. Bulls make money. Bears make money. Pigs get slaughtered!

Today the EIA released its weekly storage report and the market is looking for a 98 Bcf injection. Thursday at 9:30:01 AM CDT is always exciting!

This morning natty continues to drip lower being down 4.3¢ breaking below $2.50.

Elsewhere

Thomas Jefferson and John Adams were two of our great forefathers but were also political enemies. Both were co-authors of the Declaration of Independence and both were elected president. When George Washington was elected as our first president John Adams was also elected as our first vice president. Washington then appointed Thomas Jefferson as the first secretary of state setting the stage for a political fight which would last more than a decade. The stage was set when Washington declined to run for a third term pitting the two against each other as they ran for president. Adams won that bout but Jefferson was not deterred. Four years later the two once again ran against each other and this time Jefferson one. After the loss Adam’s returned to Massachusetts to lick his political wounds while Jefferson went on to win a second term.

Although the two subsequently engaged in mutually respectful correspondence for years, Adams never got over Jefferson beating him for the presidency. The bitterness lasted to his death when on his death bed Adams whispered in some of his last words “Thomas Jefferson survives.” Adams left the world thinking that his old adversary had won the final battle – longevity. Too bad texting didn’t exist back then for maybe then he would have passed away in peace for what Adams didn’t know was that Jefferson joined Adams in death on the very same day, July 4th, 1826, exactly 50 years after the approval of the Declaration of Independence. Not only did both past presidents pass away on the same day, Adams actually died five hours later! Adams won his “final” victory, but never knew it.

Have a good day.