Equities and the Economy:

• Major indexes close higher for second consecutive day.
• Dow and S&P post second week of losses.

The major indexes logged a second day of gains on Friday with the Dow closing 142 points higher at 20,805, the S&P 500 ended 16 points up at 2,382 and the Nasdaq added 29 finishing at 6,084. However, Thursday’s and Friday’s gains weren’t enough to overcome Wednesday’s carnage with all three major indexes posting losses for the week. Both the Dow and S&P shed 0.4%, logging a second consecutive week of losses, and the Nasdaq fell 0.6% for the week. Last week was a terrible week for President Trump culminating on Wednesday on a report that Trump in February asked then FBI Director James Comey to stop an investigation into Russian interference in the election. This led investors to conclude that political distractions would delay Trump’s infrastructure and tax reform policies with those economic stimulus events baked into stock P/E ratios. This led investors to take some profit.

I haven’t mentioned quarterly earnings in a while but they’re coming in good. 452 of the S&P 500 companies have released results and about 75% have topped earnings expectations for Q1 2017. In a typical quarter about 64% beat estimates.

Asian shares closed mixed and European stocks are trading the same, and with no major market moving events over the weekend we’re doing the same with the Dow up 39 points.

Oil

• Prices continue to recover.
• WTI closes over $50 for first time in a month.

Oil prices continued their recovery on Friday with WTI closing 98¢ higher at $50.33 and Brent up $1.10 settling at $53.61. This was the first time WTI closed over $50 in a month. It was a good week for producers with Texas Tea scoring a 5% gain. Prices continue to find support on the jawboning coming from OPEC that production cuts will be extended at least through the end of the year and probably until the end of Q1 2018. OPEC meets Thursday in Vienna to vote on the production cut initiative. Prices also gained support on the DOE’s weekly report on Wednesday showing the first week-to-week drop in U.S. production since February. Here’s the conundrum for OPEC. Per Bank of America Merrill Lynch, OPEC-led cuts take about 3 quarters to start drawing down inventories but U.S. shale producers can ramp up output in just 4 quarters to fill in the gap.

It gets easier to fill in the gap with more rigs working. On Friday Baker Hughes noted in its weekly rig count report U.S. drillers added 8 more oil rigs last week. This marks the 18th consecutive week of oil rig count growth. The oil rig count is currently 126% higher than it was at its nadir exactly one year ago.

WTI is up 37¢ this morning on Saudi Minister Khalid al-Falih announcing at a news conference yesterday that extending the cuts for 9 months, and adding one or two small producers to the pact, should reduce inventories to their 5 year average with is OPEC’s objective.

Courtesy of MDA Information Systems LLC

Natural Gas

• June price pops on Friday.
• Calendar strips unchanged.

Natural gas prices for next month popped on Friday with the June Nymex contract closing up 7.4¢ at $3.256. That being said, the all-important calendar strips closed virtually unchanged. Nymex front month natural gas prices have now spent nearly 2 months pivoting broadly around the $3.20 level. On the bullish side storage is 14% below a year ago levels and we’re about to enter the A/C season. On the bearish side, the higher natural gas prices go, the more market share coal captures.

The weather forecast is fairly benign this morning with some marginal heat coming into the southeast in the 6-15 day time frame. That being said, traders are definitely playing this from the long side because the 30 to 60 day forecast is showing above normal temperatures across most of the nation. They’re going to have to be proven wrong to sell. Natty is up 4.7¢ this morning.

Boy have things changed. 10 years ago Texas, Louisianan and Oklahoma were the top 3 natural gas producing states. Today, Texas is number 1. Guess who’s number 2. Pennsylvania! Last year the Keystone state produced 14 Bcf/d, or 5.1 Tcf, and that production came with the lowest number of wells drilled since 2008.

Elsewhere

It’s the NBA playoffs so I thought I’d throw you a basketball story. Everyone knows who Kobe Bryant is. The Los Angeles Laker icon. Kobe has a reputation for being known as not the most generous athlete. Now to be fair, he has engaged in many charitable acts, including advocacy for LA’s sizeable homeless population, but his persona has always depended on setting high expectations for those around him, and offering tough love, if not outright animosity. Plenty of this former teammates would testify to it.

However, I’m sure William Pate would disagree. William is a high school senior in Indiana. He made a deal with his teacher that if he tweeted Kobe and Kobe retweeted his tweet the class would not have to take the final exam. William tweeted and waited, and waited, and waited. Then, after seven hours and to William’s’ delight Kobe retweeted William’s tweet, and I love what Kobe added. “Hope you have an A in this class.” Always teaching a lesson, Kobe was telling William that if he didn’t have an A in the class he just gave up the opportunity to improve his grade.