Equities and the Economy

Boy, that reprieve was short lived. Yesterday U.S. stocks ran up sharp losses with the Dow falling 365 points, 2.21%, to 16,151, the S&P 500 lost 48, 2.50%, ending at 1,890 and the Nasdaq got unadulteratedly destroyed losing a whopping 3.41%, 160 points, to 4,526. The S&P closed below 1,900 for the first time since September. The theme continued with investors concerned about sliding commodity prices heightening their fears about the growth of the global economy, especially China, and general nervousness surrounding this earnings season which just began Monday. The market is also having to contend with the Fed withdrawing its QE punch bowl and them raising interest rates in conjunction with equity valuations which are still lofty. And then there was Morgan Stanley. Yesterday they issued a report downgrading the technology sector to underweight. This brought in heavy selling bludgeoning the Nasdaq and pulling the rest of the equity market lower. Wow, I wish I had that much sway in the market! The star performers of the Nasdaq last year were some of the ones hit the hardest yesterday. I’m talking about the FANGs. Facebook down 3.95%. Amazon down 5.8%. Netflix getting destroyed falling a whopping 8.5%. Google (now Alphabet) down 3.5%. Uggggggly! Twitter hit a record low to $18.68, a dollar below the last record low.

The fundamental data was actually pretty good yesterday with the main data point being the Fed’s Beige Book which described growth as expanding across 9 or the 12 Fed districts with improving credit conditions, strong employment and modest wage growth.

Overnight the Asian markets did the exact opposite of what they did the previous day with the Hang Seng and Nikkei closing lower and China’s Shanghai closing higher. All the major European indexes are currently trading materially red which is the collateral damage brought on by the trade action of U.S. equities yesterday. Germany’s DAX is close to one year lows. That is itself interesting because the fundamental data was bullish today with Germany’s GDP reported at 1.7% for 2015 which was better than forecasts.

The U.S. equities markets are correcting from yesterday’s material sell-off with the Dow up a sweet 219 points. But we need to wait for the close. The pattern of late has been for mornings to be strong but that strength proves to be ephemeral and the market closing flat to down. Maybe we can thank Goldman Sachs for today’s bounce. After yesterday’s post by Morgan I guess Goldman felt they needed to toot their horn. Ms. Abby Joseph Cohen, president of Goldman Sachs Group Inc.’s Global Market Institute, said today that the plunge in U.S. stocks is an “emotional response” obscuring expansion in both the American economy and corporate profits. She said the fair value of the S&P Index is 2,100. The last time we saw that level was December 1st and we’ve fallen 10% since that time. For 2016 the S&P is down 7.5%. Sounds to me that Morgan is short and Goldman is long.

By the way, CNN’s Fear and Greed Index is at 14, extreme fear, which is a level we haven’t seen since September. Back in August the index hit single digits when stocks plummeted August 24th.

Oil

With equities collapsing all around it oil prices managed to hold their own. At least WTI did adding 4¢ settling at $30.48. Brent didn’t fare as well slipping 55¢ closing at $30.31. It’s interesting that WTI prices hung in there considering yesterday’s weekly DOE crude and products report was bearish. Although crude stocks increased by only 234,000 barrels and below forecasts, gasoline inventories surged climbing 8.4 million barrels and way above expectations of 2.25 million barrels. Additionally, distillate stocks, which is mostly diesel, leaped 6.1 million barrels materially greater than the forecast of 2.2 million barrels. This data should have driven oil prices lower. This is but one data point and may be built into the market because of Tuesday’s bearish API report, but my antennae are up.

This morning WTI is up $1.03 largely on the strength in equities, and oversold conditions.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices closed little changed yesterday from Tuesday at $2.269/MMBtu, up 1.2¢. Chatter. Today is Thursday and that means its EIA storage report day. The market is looking for a withdraw of 180 Bcf. This compares to a big withdraw last year of 220 Bcf and a five year average of 192 Bcf. This morning’s weather forecast is marginally warmer than yesterday’s for the 11-15 day time frame for the eastern half of country as the Godzilla El Nino appears to be reasserting itself after exiting for about 10 days. On the weather forecast natty is down 4.8¢.

Elsewhere

Well if you’re reading my Blog today you obviously didn’t win the $1.6 billion Powerball. I didn’t. Three winners from Chino Hills, CA; Florida and Tennessee will split the ginormous pot. The odds were 292,201,338 to 1. Putting this in perspective, the population of the United States is about 323 million people. Here are 11 Powerball facts everyone should know.

1) Winners should expect to keep only about a third of the advertised jackpot. The rest goes to federal, state and city taxes.
2) The store/seller of the winning ticket receives a $25,000 bonus. That money is not taken from the winner’s jackpot.
3) Although it’s pure randomness, some states have more winners than others. Pennsylvania has had 16 jackpot winner over the past 13 years.
4) You can get in big trouble if you try to cash a fake or falsified ticket. A woman in Illinois was charged with forgery and attempted theft. Seriously?!
5) Powerball began November 7, 2015 at $40 million. There was no winner the first time, and the subsequent 19.
6) Since that November day in 2015, 1.55 billion tickets have been sold.
7) Specifically regarding yesterday’s Powerball, there was an 85.8% chance the winning ticket had been sold.
8) Lottery officials identify the winners by running all the numbers sold through a central computer identifying where the ticket(s) was sold
9) Annuity vs. cash option declaration. Some states require you to decide at the time of the ticket purchase. Some let you wait.
10) If you choose the annuity option you receive 30 payments over 29 years. The annual payment may differ slightly year to year based on the payouts from the securities investments that the lottery chooses to invest in.
11) The time within which you have to claim your prize varies slightly by state, but is generally around 180 days. You have to sign the ticket and claim the winning ticket in the state where the ticket was purchased, even if you live in another state.

Have a good, and lucky, day!