Equities and the economy

A solid jobs report, encouraging data on manufacturing and dovish monetary policy pushed stocks markedly higher on Friday with the Dow closing up 108 points, 0.61%, at 17,793, the S&P 500 adding 13, 0.63%, to 2,073 and the Nasdaq finishing at 4,915, up 45 points, 0.92%. For the week the Dow, S&P and Nasdaq rose 1.58%, 1.81% and 2.95%, respectively. In summary, a very, very solid week for the 401K. What’s really impressive is how U.S. stocks have performed shrugging off the weak performance of the European stocks and weaker oil prices, and we all know the latter correlation was very strong for months. The S&P is now up 6 of the last 7 sessions and is within 3% of its 52 week high.

Let’s get to fundamentals. As I mentioned in Friday’s Blog, the Labor Department’s March Employment Situation Report was released that morning showing private employers added 215,000 jobs, the unemployment rising 0.1% to 5.0%, average hourly earnings rising 0.3% and are up 2.3% in the last 12 months (a very important data point to the Fed for it impacts inflation) and the average work week held steady at 34.4 hours. The labor force participation rate rose to 63%, which is why the unemployment rate rose, and is at its highest level since March 2014. This is a very good report folks.

On Friday a couple of reports were released on U.S. manufacturing. Now manufacturing has been a laggard in the economy because of the strength of the U.S. dollar, but the reports surprised the market in a very positive way. First, the final reading of Markit’s March U.S. manufacturing PMI was 51.5 and ahead of the preliminary flash reading of 51.4. Second, the Institute of Supply Management’s manufacturing index rose to 51.8 last month which is up from February’s 49.5. Remember, a reading above 50 indicates expansion.

Although P/E ratios are a tad high, the economy fundamentally looks solid and with the Fed maintaining its dovish monetary policy stocks look poised to go higher.

This morning investors are taking a wait and see attitude with the Dow up 5 points. In Asia, the Chinese, Taiwanese and Hong Kong markets are closed for Ching Ming day so volumes are light. On the other side of the pond European indexes are beginning the week on a positive note up about 0.40%.

Oil

The correlation between oil prices and equities has broken over the past two weeks for equities have risen while WTI closed on Friday at its lowest level over that time frame. On Friday WTI lost $1.55, 4.0%, closing at $36.79 and Brent fell $1.66, 4.1%, settling at $38.67. Prices got hit last week when Saudi Arabia announced it was not going to freeze production unless Iran did, and Iran has stated they are not, and should not, be held to a production quota because the embargo was only recently lifted and they’re still ramping up production. By the way, Russia announced last week its production hit fresh post-Soviet highs in March at 10.9 million bpd and OPEC’s production increased on the heels of rising Iranian production which rose 250,000 bpd to 2 million bpd. Venezuela has got to be hating this. They hate it when capitalism works.

Baker Hughes released its very closely watched rig count report on Friday noting another 10 oil rigs were laid down last week with now 362 rigs working. Total rigs, oil and natural gas, dropped 14 to 450 which is the lowest number since Baker Hughes began keeping records in 1949!

This morning WTI is up 36¢, chatter, while the dollar is bouncing off 5 month lows.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices closed flat relative to Thursday down 0.3¢ at $1.956. Last week we hit a 6 week high just above $2.00 on expectations of decreasing production and escalating demand. This morning the cash market is strong with the cold blast coming through the upper Midwest and northeast this week which is definitely kicking on the heaters pushing natty up 9.5¢ as I write. Additionally, the weather forecast came in cooler this morning from Friday noting the below normal temperatures are going to stick around longer than initially thought.

Elsewhere

We’re all familiar with the famous ride by Paul Revere on the evening of April 18, 1775. He was instructed to ride to Lexington, Massachusetts to warn Samuel Adams and John Hancock that British troops were marching to arrest them, and then ride on to Concord. Riding a horse that he borrowed from his friend Deacon John Larkin, he alarmed the countryside, stopping at each house, and reached Lexington at midnight. After delivering the message, Revere was joined by William Dawes, who had been sent on the same errand by a different route. On route to their next destination, Concord, Massachusetts, where weapons and suppliers were hidden, they were joined by Dr. Samuel Prescott. At 1 AM, they were arrested by a British patrol, but Prescott and Dawes managed to escape. Revere was released without a horse at 2 AM and returned to Lexington.

However, contrary to widely held belief, Paul Revere never made it to Concord. Per Patrick Leehey, Research Director of the Paul Revere House, after he and Dr. Prescott (and Dawes, unless Dawes saw what was happening and rode the other way) were halted on the road between Lexington and Concord, they were herded down into nearby meadow. Prescott said “put on!” which meant scatter. Revere and Prescott rode quickly off in two different directions. Prescott, a local man, jumped his horse over a fence and escaped. A Concord native, Prescott was able to make his way to Concord and warn the militia there. Revere headed in a different direction towards a section of woods, but ran into a group of British officers hiding there and was recaptured. This Revere escaped twice from British soldiers before he was finally corralled for good. An unarmed man, surrounded by a group of armed soldiers, there was little else he could have done. After being interrogated for a while, Revere was let go. His horse, however, was confiscated, so even if he had wanted to continue to Concord, he didn’t have the means to do so. So Revere completed 2 of his 3 objectives. He warned Adams and Hancock and his fellow countrymen along the way, but, he never made it to Concord to warn the militia there. Prescott did that. Hence, Paul Revere never completed his journey!