Equities and the Economy:

The Dow closed down 53 points yesterday closing at 18,401 and in the process snapped a six month winning streak posting a 0.2% loss for the month August. The S&P 500’s five month rally came to an end falling 0.1% for August after losing 5 points yesterday to finish at 2,171. The Nasdaq, which shed 10 points yesterday closing at 5,213, bucked the monthly trend gaining 1% for August. The energy sector weighed on equities yesterday with oil prices falling more than 3%. It was a very quiet month. Volatility as measured by the S&P 500 was tepid for we have not had a daily move of more than 1% up or down since July 8th, the longest streak since the summer of 2014. Traded volume was also low with about 1.73 billion shares traded on the S&P 500 Spider ETF vs. an average of a monthly volume of 2.6 billion. Trading on the ETF was also more than 50% below its volume last August. However, it certainly hasn’t been a “sell in May and go away” summer. Since the end of April the S&P is up 5% and since the June lows 9%.

The big report yesterday was ADP’s private sector employee report stating 177,000 new jobs were added in August. This was “spot on” economists’ forecasts and did not impact the equities market. The data showed the American job machine continues to hum along. Importantly, July’s number was revised materially upward from 179,000 to 194,000. As you regular readers know, I put credence into revisions for in good times revisions are to the positive and bad time to the negative. Investors pay close attention to the ADP report looking for insight into tomorrow’s big report which is the Labor Department’s Employment Situation Report for August.

Another positive report came out yesterday and this one was from the National Association of Realtors noting that pending home sales rose above expectations at 1.3% in July from June with its index rising to 111.3. There’s still low inventory and it is pushing the median price of a home to $244,100 which is up 5.3% from a year ago. The Millennials are frustrated.

With the big employment report coming out tomorrow and the long holiday weekend almost upon us I don’t expect much action today and we’re starting out that way with the Dow up 28 points earlier and now down 9.

By the way, I don’t report on the grains but do follow them in a general manner and have to tell you this. This year’s crops of corn, soybean, sorghum, rice and oats all look to be at or close to record harvests.

Oil

Oil prices got hammered yesterday after the EIA released its weekly crude and products report. WTI fell a big $1.65, 3.6%, closing at $44.70. Brent fell $1.33, 2.7%, settling at $47.04. The report stated U.S. crude stocks increased 2.3 million barrels with forecasts of only a 1.3 million build. Gasoline inventories dropped by 700,000 barrels but this was below expectations of a 1.0 million decreased and distillates stocks built by 1.5 million barrels with expectations of a 150,000 increase. So you can see this was a decidedly bearish report, and the market responded accordingly. It still astounds me we can have a 70% drop in rig count and U.S. crude production is only marginally lower than when WTI prices were $80 to $100 per barrel. Ten years ago you could look at the rig count and expect to see a corresponding change in production in about six months. That correlation is gone. The American oil and gas producer’s productivity is amazing.

Oil and gas producers are feeling the hangover from yesterday’s EIA report with WTI down 82¢ this morning.

Courtesy of MDA Information Systems LLC

Natural Gas

Another choppy day in natural gas. The market began the day 3¢ higher on a warmer overnight weather forecast then selling came in driving it down 6¢ relative to Tuesday’s close then the bulls came in again buying it and at the bell natty closed up 6.0¢ at $2.887. The cash market remained strong trading as high as $3.00 due to about 0.5 Bcf/s being offline due tropical storm Hermine in the Gulf. The storm will pose no threat to the offshore oil and gas producing properties but the folks living in the Florida panhandle are not going to have a very fun weekend. The storm is expected to make landfall very early tomorrow morning.

This morning the EIA will release its regularly scheduled storage report. The market is looking for an injection of 46 Bcf which would continue the all-summer trend of below average injections. Regarding the weather, while the next 5 days are pretty much normal for the entire country, it’s going to be very warm in the Great Lakes, MidAtlantic and northeast regions in the 6-10 day time frame with the heat remaining in the northeast in the 11-15 day period. This will definitely elevate natural gas burns and we’ll see this in the storage report in about 3 weeks. This morning natty is retracing a bit before the storage report being down 4.0¢.

Elsewhere

Coming to a theater near you, virtual reality! At least at an IMAX theater. IMAX announced this week at a press conference in Berlin they plan to add a bit of virtual reality (VR) to their IMAX theater experience with the opening of a new VR center in Los Angeles. Users will wear a StarVR headset developed by Acer and be in a “pod” with 6 to 8 feet of space for you to walk around and explore a VR environment for 7 – 10 minutes for $10. The StarVR headset features two 5.5 inch displays that yield more than 5 million pixels of resolution and a wider field of view, 210 degrees instead of the usual 100 degrees. Starbreeze CEO Bo Andersson Klint, the developer of the headset, said “We want to create the Matrix.”