Equities and the Economy

Investors had the weekend to digest Friday’s OPEC meeting results and came out yesterday pounding the energy sector. No, pounding is not the word. Annihilation is more appropriate. Yesterday we returned to the theme of oil prices driving equity prices, which we didn’t have last Thursday when the stocks fell. The hammering of oil prices pulled down the stock prices of energy companies which pulled down the indexes. The numbers are: Dow lost 117, 0.65%, to 17,731, the S&P 500 fell 15, 0.7%, ending at 2,077 and the Nasdaq finished off 40,0.78%, to 5,102. The energy sector lost 3.6%. The decline in oil prices was really the only thing the market had to focus on yesterday for there were no economic reports, no fundamental data, released. I need to add here that the S&P 500, which really is the bellwether index, is right on long term support dating back to late 2011 as well as close to short term support, 2,045, dating back to October 2015. We need to hold these levels.

This morning is not beginning well. The Dow is down a very material 210 points. A combination of weak Chinese data and lower oil prices are the culprit. Regarding the latter, WTI is down 75¢ as I write. With respect to the former, exports shrank 6.8% y-o-y in November vs. expectations of -5.0% and -6.9% y-o-y prior. Imports fell 8.7% y-o-y and while that was less than forecasted, it is still the 13th consecutive month imports have fallen. Not a good global economic omen when the world’s second largest economy is slowing. Yes, China is still growing, somewhere around 6% GDP, but price action in every commodity and market occurs at the margin, and in China’s case the “margin” is decreasing.

We need a Santa Clause rally!

Oil

As previously mentioned, oil prices got destroyed yesterday with WTI closing down $2.32, that’s 5.8% folks!, at $37.65. Brent fell 5.3%, $2.27, settling at $40.73. These are the lowest closes in 6 years. OPEC met Friday and its decision not to limit production is the reason for the decline. Now this was expected by investors and traders, but OPEC’s complete lack of any unity was unexpected. At least in last June’s post-meeting communique OPEC stated “..the Conference resolved to maintain the 30 million bpd ceiling…” In last Friday’s communique the production limit was omitted and OPEC simply acknowledged that the member states were producing 1.5 million bpd above the quota and that with Iran returning to the market sometime after the first of the year trying to establish a quota would have been impossible. The cartel has said without saying it that the market will decide the price of oil. The marketplace now rules! We’ve gone from the Texas Railroad Commission setting the price to OPEC setting the price to now the free market setting the price. And the free market is telling us that oil is worth less today than yesterday with WTI down 65¢ this morning.

Courtesy of MDA Information Systems LLC

Natural Gas

The warm weather continues to weigh on natural gas prices with the January Nymex contract closing down a very material 11.9¢, 5.4%, at $2.067. You can buy January gas at almost 2 bucks! Incredible! I’ve been in the this industry for 35 years and the only time I can think where the weather came close to what we’re currently experiencing is the winter of 2011-2012, and in that winter we saw Q1 2012 get some normal to cold weather, especially in March. I might add that it was April 2012 when we saw the 10 year low which was $1.92. We’re not far from that now. With the warm weather we’re having the cash market is getting crushed. While futures prices are approaching that 10 year low, cash prices are at 15 year lows! And the warm weather continues as you can see in the forecast. The warmth over the next 5 days extends across the entire U.S. I’ve closely followed the weather for decades and it is very, very rare to see the entire U.S. have temperatures much above or much below normal. Usually the anomaly occurs for half to 2/3rds of the country with the other half to1/3rd normal to the opposite. After yesterday’s bludgeoning natty is bivouacking down “only” 0.9¢.

Elsewhere

Creepy, crawly bugs get to you? Do closed spaces, like being in an MRI machine make your anxiety level rise. Maybe it’s a slithering snake that freaks you out. It did Indian Jones! It’s basic human nature for certain things to make us at a minimum, uncomfortable, if not downright scared. Thanks to a small, almond shaped part of the brain called the amygdala, when something frightens us our survival instinct kicks in and within a mere tenth of a second we can go from calm to full on fight-or-flight mode. The fear normally subsides once we understand there’s really nothing to be concerned about, but when that fear is extreme and can’t be quelled by simple logic, you reach phobia.

Phobias’ are more common than you might think. 4-5% of the U.S. population suffers from one or more clinically significant phobias in a given year per the National Institute of Mental Health. Crowdsourced did a survey of 20,500 responses which included 44 phobias for participants to choose from and here are the 10 ten:

1. Acrophobia (heights)
2. Arachnophobia (spiders)
3. Claustrophobia (enclosed spaces0
4. Ophidiophobia (snakes)
5. Thalassophobia (deep water)
6. Necrophobia (death)
7. Glossophobia (public speaking)
8. Coulrophobia (clowns)
9. Trypanophobia (needles)
10. Entomophobia (insects)

Other phobias on the list are a little out of the ordinary. Coming in at 11 was trypophobia, fear of objects with irregular patterns of holes. Lepidopterophobia, fear of butterflies ranked 18th.

Gender makes a difference. Women’s top fear was claustrophobia. Men were more likely to include fear of dogs (cynophobia) and sharks (galeophobia) in their top 10. Age made a difference too. Millennials cited fear of the dark and dogs as among their top phobias while baby boomers listed the more tactile fear of spiders as their number one phobia, and included katagelophobia, fear of ridicule, in their top 10.

Have a good and phobia free day.