Equities and the Economy

Just like the tires of your car for you in the northeast gaining traction with the ice melting, the U.S. equities market just might be gaining some traction. Yesterday the Dow rose a nice 126 points, 0.79%, to 16,070, the S&P 500 added 10, 0.53%, ending at 1,893 and the Nasdaq finished 39 points higher, 0.87%, at 4,507. The correlation between oil and equities, which for one day on Wednesday didn’t hold, returned yesterday with oil prices rising for the third consecutive day. The energy sector rose 3.15%. Facebook’s earnings report sure helped. It reported that its profit more than doubled in Q4 2015 pushing its stock up a whopping 15.5% on the day. That really sums up the action for the day. Higher oil prices pushing equities higher, with some love from Facebook.

Regarding yesterday’s economic news, the Labor Department released its weekly jobless claims data with claims falling 16,000 from the previous week to 278,000 which was pretty much in line with expectations. This was a “good” number for claims had been rising the last few weeks but with the exigencies associated with the dynamic employment environment of the holidays investors weren’t sure how to take the numbers. The Bureau of Census released Durable Goods Orders for December showing they fell a big 5.1% which was much greater than expectations of -0.6%. Now the “headline” number needs to be taken with a grain of salt because an airplane order moved forward or back can change this number materially. However, drilling down into the report orders for nondefense capital, a surrogate for businesses investment, fell 4.3% for the month. The Street was expecting something close to -0.2%. Finally, the National Association of Realtors reported its index of pending home sales rose 0.1% to 106.8 in December. This was mildly disappointing for the market was looking for a 0.9% rise.

I think it’s going to be a good day for the Dow is up a big 187 points right now. And to what do we have to thank? You have got to know by now! More QE! The Bank of Japan concluded its two day meeting today and announced they will be charging negative interest rates, meaning they will charge their constituent banks for the privilege of parking their money with the central bank. The logic here is to give the constituent banks an incentive to increase lending which in turn should help stimulate economic growth. The same tactic was adopted by the ECB in 2014, the first time ever to be done by a central bank. On the BOJ announcement the Japanese yen is getting pounded falling 2.3% vs. the U.S. dollar, which is exactly what the BOJ wants for it makes Japan’s exports cheaper, and Japan’s economy is very heavily dependent on exports.

The other news this morning is bad news/good news. Our government said that Q4 2015 GDP was an anemic 0.7% on an annualized basis due to consumers cutting back on spending, businesses cutting back on investment, a slowdown in the global economy and a stronger dollar which trimmed exports. This is a big drop from Q3’s 2% growth annualized. Most of the Q4 slowdown was due to consumer spending which grew at an annual rate of just 2.2% compared to Q3’s 3%. Spending in the oil and gas industry plunged 38.7% quarter to quarter. Home construction grew at a robust 8.1% annualized. That’s the bad news. You know the good news. Some form of QE, even if it simply means a postponing of an interest rate increase.

Oil

Oil prices rallied on the continued talk of cooperation between Russia and OPEC to cut production. The number being bantered about is 5% each. WTI rose 92¢, 2.8%, settling at $33.22 and Brent added 79¢, 2.3%, closing at $33.89. Oil prices look to post a 4th consecutive day of gains with WTI up 47¢ this morning and to its highest level in more than 3 weeks. It’s hard for me to believe that Russia and OPEC will actually cooperate to cut in production, let alone adhere to it, but wed ran out of sellers and the market was way oversold and the headline news sent shorts running for cover. By the way, U.S. crude stockpiles are at 494 million barrels, an 80 year high.

Courtesy of MDA Infomration Systems LLC

Natural Gas

The March Nymex contract finished its first day quietly with the prompt month gaining 2.5¢ settling at $2.182. The EIA released its weekly storage report stating the U.S. pulled 211 Bcf out of the ground which came in almost exactly at expectations of 210 Bcf. Hence, no movement in natty prices. That being said, prices have been continuously creeping higher every day and are now up 25%, 12%, from early last week. And it’s being added to this morning with natty up a hefty 10.1¢. The next few days bring some extremely warm temperatures to the eastern 2/3rdds of the country (Houston is forecasted to post a high on Monday of, are you ready, 80!) but the 6-15 day period shifts back to cold temps which is definitely bringing in buyers.

In general, I feel that the entire market, both equities and commodities, has shifted to “risk on” and folks are buying everything.

Elsewhere

Fire hydrants. They are ubiquitous. The widely adopted safety feature dot streets everywhere giving fire fighters easy and immediate access to a water supply. The invention has been invaluable in saving thousands and thousands of lives since its adoption in the earth 19th century. So who do we owe credit to for creating this device so critical to our modern society? We don’t know. The patent record was destroyed in 1836 in a fire in the U.S. Patent Office.