Equities and the Economy

U.S. stocks rallied sharply yesterday marking a second day of gains with the Dow jumping 157 points, 0.90%, to 17,525, the S&P 500 adding 21, 1.04%, to 2,043 and the Nasdaq climbing 43, 0.86%, to 4,995 (still under that 5,000 level). Some folks are stating because oil prices rose, and WTI did nicely, it drove equity prices higher. I’m not saying that didn’t help but I think it was the big jump in European markets that helped tremendously. Yesterday morning at the time Dow futures were up 160 points but WTI was up only 60¢. For the record, Germany’s DAX closed up a huge 3.07% and France’s CAC 40 ended up 3.16%. Those are big gains, amigos!

Fundamentally, the headline was Novembers Consumer Price Index which came in unchanged but when you take out the volatile food and energy components leaving core CPI inflation rose 2.0% over the last 12 months. Ding, ding, ding. This is the Fed’s target rate for inflation. Further, the services sector, which is 63% of the index, keeps rising and at an accelerating rate. In November it was up 2.5% y-o-y. When energy prices once again begin rising, and they will my friend, inflation will be well above the Fed’s 2% target. Which is a perfect segway to the next topic. The FOMC will conclude its two day meeting today with Fed Chairperson Janet Yellen speaking afterward. Expect a 0.25% increase in the Fed Funds overnight rate and her to reiterate the Fed is data dependent and that further increases will be slow in coming.

This morning the Santa Clause rally continues with Dow futures up 58 points. After falling for 6 consecutive days, the Asian markets closed higher but this was mostly on the coattails of yesterday’s gains in U.S. equities. The European indexes are trading nicely higher today, not as great as yesterday but they’re up about 1%.

Oil

Oil prices rallied for the second consecutive day with WTI up $1.04, 2.7%, closing at $37.35 and Brent added 35¢, 1.4%, settling at $38.45. The rising prices have helped fuel equities move higher. Oil prices are lower 64¢ this morning driven down by last evening’s API report which showed an unexpected build of 2.3 million barrels in crudes stocks. The EIA reported that commercial crude oil inventories here in the U.S. (Cushing, OK and Gulf Coast) are at a record high 309.4 million barrels as of November 30th and that just over 70% of working capacity is being utilized, which is only slightly lower than the record set in the week ending April 24 of this year.

Intestinally, yesterday the Brent/WTI spread traded at its lowest level since January 2015 at below $1. The driver here is that the U.S congress is putting forward a proposal to end the 40 year ban on crude exports. For the record, although crude exports have been banned, refined products (gasoline, diesel, jet fuel) are not.

The low energy prices are taking their toll. There are at least three dozen energy companies operating in the Bakken, Permian, Marcellus or Eagle Ford have filed for bankruptcy. This will rise to at least 50 before this chapter in the oil market is over.

Courtesy of MDA Information Systems LLC

Natural Gas

The weather has sawed the bull’s horns to nubs with natural gas prices trading at their lowest level since Q3 2001, 14 years. Front month prices have now dropped about 50% for their 2015 high Yesterday natty fell another 7.2¢ settling at $1.822. January gas at $1.822! Absolutely amazing! And remember, this is at Henry Hub, LA. The producer is seeing a lot lower price at the wellhead because they have to pay for gathering and processing from the wellhead to the mainline. Uggggly!

It’s hard for me to believe but the weather forecast this morning moved even warmer in the 6-15 day time frame for the eastern half of the country. On Christmas Day I’ll be in New York City with my two daughters when normally the high is 42 degrees. The forecast: 65! I think traders are taking a breather after whacking it for so many days in a row with it trading basically flat this morning, up 0.4¢.

Elsewhere

William Harvey Casey was born in Norfolk, Virginia in 1840. When the civil war broke out he made his way to Massachusetts and in time joined the famed Morgan’s guard which became part of the 54th Massachusetts Infantry Regiment. In July 1863 Carney found himself engaged in the disastrous battle at Fort Wagner. His regiment was part of a large force whose task it was to storm the sandy beaches of Morris Island, South Carolina and take Fort Wagner. As he and his comrades inched forward the minie balls took their toll, as did the Confederate artillery. Carney was struck twice, but still moved inexorably forward toward the enemy. During his advance he saw the color bearer take a hit. It was a stomach wound but somehow the soldier held on for a moment. Carney, who was bleeding himself, reached the mortally wounded soldier as he slumped to the sand and William dove for the flag and grabbed Old Glory just before it hit the ground.

Somehow through the battle Carney miraculously held onto the American flag keeping it aloft. One thousand seven hundred and fifty-seven Union soldiers were killed or wounded on those sands that day. After the battle Wagner, bleeding from his wounds, worked his way to his regimental commander and presented him with the Stars and Stripes and whispered “The old flag never touched the ground.” He then fell to ground unconscious from the loss of blood.

Sargent William H. Carney recovered from his wounds and in later years was in great demand as a leader of Memorial Day parades and as a speaker at patriotic events. You see, this refugee from the south, this hero of the 54th Massachusetts Infantry, this man willing to lay his life down to the save the flag, was African American and the first black soldier in the history of the United States to receive the Congressional Medal of Honor.