Equities and the Economy:

• Dow closes at record.
• Nasdaq has its worst day in 3 months.

After closing at new record highs on Tuesday it was a bifurcated day yesterday for stocks. The 30 stock blue-chip Dow had a great day closing up 104 points, 0.4%, at yet another record high at 23,942 while the Nasdaq fell 88 points, 1.3%, to 6,824 posting it worst one-day drop since August 17th. The S&P 500 ended between the other two indexes basically unchanged down a point at 2,626. What we saw yesterday was a rotation from high-flying tech stocks into more index type fund stocks. The Nasdaq 100 has been “el fuego” having gained for 9 straight weeks, the longest since early 2012, and was getting a little long in the tooth so what we saw was some portfolio rebalancing. Shares of the FAANG stocks were hardest hit.

Regarding the fundamental data, the Fed released its Beige Book, a compilation of anecdotes on the U.S. economy, noting a “slight improvement in the outlook” among its 12 districts with growth remaining at a “modest to moderate pace.” Importantly, the Fed said it’s witnessing strengthening inflation over the past month with increases being passed on to consumers. The lack of inflation has been what’s made the Fed slow to raise interest rates for fear of derailing the economic recovery. That being said, the market is pricing in a 90% probability rates will be raised at the December FOMC meeting.

Revised Q3 GDP data was released yesterday and raised to a strong 3.3% from 3%. Also, pending home sales jumped 3.5% in October. While down 0.6% from a year ago, that’s still a strong number. A lack of inventory continues to weigh on sales.

This morning we’re starting out strong with the Dow up 113 points.

Oil

• Prices retreat for 3rd consecutive session.
• Russia a question mark.

Oil prices fell for a 3rd consecutive session yesterday with WTI off 69¢ to $57.30 and Brent closing down 50¢ at $63.11. Today OPEC meets to vote on extending its 1.5 million bpd production cut until the end of 2018. While its fully expected OPEC will vote to do so, the Russians, who are responsible for an additional 300,000 bpd of cut, may be causing a wrinkle in the deal. A few weeks ago it was believed the Russians were fully on board with extending the cut until the end of 2018. Over the past couple of weeks though there’s been talk that the Russian government is wanting the extension to only be until the end of June before looking at extending it until the end of 2018. They definitely want to see higher oil prices through March for that is when the Russian presidential election is, but word is they’re worried about the ruble getting too strong because of higher oil prices which would be a drag on the Russian economy.

WTI is up 34¢ as we go into the OPEC vote.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices at 3 week highs.
• Move higher on colder forecast.

There’s high correlation in the winter between the weather forecast and natural gas prices and that continued yesterday. Yesterday’s early morning forecast was markedly colder for the major gas consuming regions of the country (Midwest, MidAtlantic and Northeast) and traders came in buying it. The January Nymex contract finished its first day as the prompt month contract closing up 5.1¢ at $3.179. It traded as high as $3.218 which was a 3 week high. That being said, all the action is in the 2018 time frame for even with the volatility in the 2018 contracts over the past couple of months, the calendar 2019 – 2022 strip prices have been sedate.

Today the EIA releases its weekly storage report with traders looking for 42 Bcf withdrawal. If the forecast materializes it will be about average based upon history. Last year we saw a withdrawal of 48 Bcf and the 5 year average is 47 Bcf.

Today marks the end of the 2017 hurricane season. And good riddance! While this season was an unusually active hurricane season, it was not the most active. The 2005 season holds that record (remember Katrina?!). However, the 2017 season is highly likely to be the most expensive season on record. The most expensive season to date was also in 2005 coming in at a cost of $143.5 billion. While the 2017 numbers are still being tallied, early estimates show that Harvey and Irma alone cost about $300 billion in damage. That estimate doesn’t even include Maria which hit Puerto Rico.

After 3 days of higher prices traders are taking some profits ahead of the storage report with natty down 7.8¢

Elsewhere

If you’re flying American Airlines (AA) this holiday season between December 17 and 31st your vacation might just turn into a staycation! A computer glitch in the pilot scheduling system resulted in leaving 15,000 flights critically understaffed. The glitch allowed AA pilots to take vacation at the same time during the busy holiday travel period leaving thousands of flights with no pilots assigned to them. The system went from responsibly scheduling to becoming Santa Clause to everyone. The computer said. “You want the days off? You got ‘em!” without ensuring flights were manned. Now some of the biggest hubs are without pilots including Miami, Dallas-Fort Worth, Chicago’s O’Hare and New York’s LaGuardia.

The airline is working diligently (understatement of the day!) to address the issue saying they have reserve pilots to help cover the shortfall and are paying pilots who decide to work 150% of their regular hourly rate, the most allowed by the pilot’s contract. If I were flying AA I’d be a little bit nervous!