Equities and the Economy:

• Stocks end materially lower.
• Unexpectedly weak earnings from Goldman Sachs and Johnson & Johnson to blame.

I’ve been telling you that S&P 500 P/E ratios are lofty and a company’s earnings better come in at expectations or its stock will get pounded, and that’s exactly what happened yesterday, at our expense. While most other big banks had reported large profits, Goldman’s earnings didn’t live up to expectations and the stock got hammered yesterday falling a whopping 3.5%. Investors also didn’t like the earnings report from Johnson & Johnson, another Dow component, and its stock price lost 2.6% yesterday. So with the two disappointing reports investors bailed pushing all the indexes lower. The Dow closed down 114 points, 0.6%, at 20,523 with Goldman alone accounting for 70 points of that drop. The S&P 500 lost 7 points, 0.3%, finishing at 2,342 and the Nasdaq also ended 7 points lower, 0.1%, at 5,849. In a further “risk off” move investors poured money into bonds with yields hitting new lows for the year.

There were two economic reports of significance yesterday. First, the Federal Reserve reported that U.S. manufacturing output fell in March led by a 3.0% decline in the automotive sector. This is the first time manufacturing has fallen since last August. The other report was from the Commerce Department noting housing starts fell 6.8% in March and greater than Wall Street was forecasting. Mitigating that disappointing news was that housing permits, a proxy for future activity, rose 3.6%.

This morning the Dow is up 34 points. A key event today will be Morgan Stanley’s earnings report. The company is “most like” Goldman Sachs and investors are looking to see if Goldman’s earnings were a rare miss or, as Marcellus said to Horatio in Shakespeare’s “Hamlet,” “Something is rotten is the state of Denmark.”

Oil

• Crude oil prices slip to their lowest level in 11 days.
• API report shows surprising build in gasoline inventories.

After rallying $7, ~14%, over the past couple of weeks oil prices have now fallen 11 consecutive session giving back about $2. Yesterday WTI closed 24¢ lower at $52.41 and Brent lost 47¢ settling at $54.89. After the closing bell the API released its regular weekly crude and products report. While crude stockpiles closed down 840,000 bbls, which was in line with expectations, gasoline inventories unexpectedly rose a hefty 1.4 million bbls which is counter to historical trends for this time of year.

Saudi Arabia is taking its role as leader of the OPEC production agreement seriously. Data released yesterday showed the kingdom exported 6.057 million bpd in February, the lowest amount since mid-2015.

Speaking of gasoline, have you noticed what I have? Prices are higher. The national average of regular unleaded gasoline is $2.410, 35¢ higher than this time last year, and the highest in 19 months.

This morning things are starting out pretty sedate. WTI is up 13¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices end little changed.
• LNG exports hit record high.

After having fallen 25¢, 7%, from a 2 month high 2 weeks ago natural gas prices have stabilized. Yesterday the May contract closed down 1.8¢ at $3.145. Chatter. That being said, I’m continuing to see buying in the back end of the curve. The calendar 2019 strip closed up 1.9¢ and the calendar 2020 and 2021 strips both closed up 3.0¢. These strip price rises will impact electricity prices.

LNG exports continue to increase. DOE data for February, the latest available, show that exports set a new monthly record at 52 Bcf. Exports have increased every month since last September. Mexico received the most LNG at 14 Bcf followed by China at 10 Bcf and Turkey at just under 8 Bcf.

This morning the bulls are out. Natty is up 4.7¢

Elsewhere

Last weekend I finished reading “Killing the Rising Sun” by Bill O’Reilly and Martin Dugard. It is a great read on the U.S. effort in defeating Japan in World War II. Harry Truman was president during this war having succeeded Franklin Delano Roosevelt upon his death. Many of us know that Truman had a now famous sign sitting on his desk which read “The Buck Stops Here.” We all know the intent of the sign, but I bet you don’t know its real meaning. Truman loved to play a good game of poker and that’s where the phrase derived. When playing poker on the American frontier a buckhorn knife was passed around the table from player to player depending upon whose turn it was to deal. If a player chose not to take his turn as dealer, he could “pass the buck.” Another bit of trivia. The reverse side of the sign, which was pointed at the president, read “I’m from Missouri,” which was Truman’s home state.