Equities and the Economy:

• New record highs across the board.
• Corporate earnings continue to look good.

The board was painted green yesterday with all the major indexes closing at new record highs. The Dow gained 100 points, 0.5%, finishing at 21,613, the S&P 500 tacked up 7 points, 0.3%, ending at 2,481 and although the Nasdaq added only a point, its close at 6,412 was a new record. I don’t want to hear any bellyaching from you QQQ owners. The Nasdaq index is up a whopping 20% y-t-d.

The driver over the past couple of weeks has been corporate earnings and it was again yesterday with Caterpillar Inc. and McDonald’s Corp announcing earnings that topped forecasts. More than 70% of the firms hat have reported so far have beat earnings and sales expectations with the former average up 7.2% and the latter up 5%. A big jump in oil prices also helped equities bringing in buyers of energy sector stocks.

Regarding fundamental data, the Conference Board reported its consumer confidence index came in at 121.1 in July. The data point probably doesn’t mean much to you but this will. This is the second highest this index has been since 2000. The only time it was higher was this past March when it hit 124.9. Confidence is being driven higher by a stronger labor market and rising home prices. Here’s an example of how strong the labor market is. North Dakota’s unemployment rate in June was 2.3% and Tennessee’s was to 3.6%, both record lows.

Speaking of housing, the Federal Housing Finance Agency said its house price index jumped a seasonally adjusted 6.9% in May from a year ago. This followed a 6.8% gain in April. Forgive the redundancy, but an acute shortage of homes and strong demand is pushing prices higher. It’s a seller’s market out there.

Today the FOMC concludes its two day meeting. They won’t change interest rates but investors will be parsing the post-meeting communique for clues as to how and when the Fed will pare down its balance sheet, which is a form of monetary tightening.

The Dow is up 79 points this morning. As they say in Alabama, “Roll Tide.”

Oil

• Oil prices post biggest daily gain of the year.
• Trifecta of data boosting prices.

Oil prices logged their single day largest gain of this year yesterday with WTI popping $1.56 closing at $47.89 and Brent settling $1.60 higher at $50.20. Three factors have been pushing prices up. First, OPEC has announced they will extend their production cuts beyond March 2018 if necessary, second, China reported this week its oil imports are at record levels and they expect a double digit increase next year, and third, Baker Hughes rig data is showing the rig count has stopped increasing. If that was not enough to get the bull’s excited, they sure did on last evening’s API report. The Institute reported that U.S. crude oil inventories fell a huge 10.2 million barrels last week. This compares to forecasts of a 2.6 million barrel draw. This sets the stage for today’s EIA crude and product’s report.

The bulls remain in control. WTI is up 44¢ this morning.

Courtesy of MDA Information Systems LLC

Natural Gas

• Weather forecast moderately warmer.
• Short covering.

After getting pounded last week natural gas prices rebounded marginally yesterday with some shorts covering after seeing yesterday morning’s weather forecast which showed some warming in the east and Midwest in the 11-15 day time frame. The August natural gas contract closed up 4.5¢ at $2.944. Speaking of the August contract, it expires for the month tomorrow. Seeing the forest and not the trees, we’ve been broadly trading around $3.00 now for about two months.

Today’s morning weather forecast is oh, so slightly cooler for the east and Midwest and natty is down 2.9¢. Chatter.

Elsewhere

Renewable generation just keeps on coming. Per our EIA, in March of this year and then again in April renewable electricity generated from utility-scale (i.e., big!) renewable sources exceeded nuclear generated electricity for the first time since 1984. Helping renewables was record generation from wind and solar and a big increase in hydroelectric power. Due to the very wet winter in the West, the snowpack was very high going into the spring in the Pacific Northwest with hydropower output in March the highest in 6 years. For all of 2017 the EIA forecasts utility scale wind generation will increase by 8% and solar by 40%. On the other side of the coin, nuclear generation was the lowest in April since April 2014 due to seasonal nuclear power maintenance. Many nukes go down in the spring for maintenance when demand for electricity nationally is lower to prepare for the higher demand summer months.