Good morning. It was a very good day for your 401K on Friday. On the heels of a positive Labor Department May payrolls report all the major indexes rose once again. While the report didn’t point to spectacular growth the main thing is that the world’s biggest economy is moving in the right direction and slowly gathering momentum. The day’s gains were broad and led by cyclicals. Cyclical stocks are companies that sell discretionary items consumers buy more of in a booming economy and vice versa in a recession. Examples include car manufactures, furniture dealers clothing stores, restaurants. The S&P 500 closed up 9 points, 0.46%, to 1,949 rising for the 10th time in 12 sessions and setting new record highs 8 of the last 10 days. The Dow also set a record gaining 88 points, 0.52%, to 16,924. The Nasdaq, although not setting a record, did pretty well too adding 25, 0.59%, to 4,321. Not too bad. Do you realize the Dow is now only 76 points from 17,000?! Folks the Wall of Worry may be high but this is a bull market. I hope the angst continues! The VIX, aka the “fear index,” which tends to rise when volatility increases or the market drops, fell 5.6% to 11.03, its biggest daily percentage decline since May 21st. It has been on the decline for months and is well below its historical average of 20, which some see as a sign that investors are ignoring concerns that could derail gains. More angst. I love it! And we’re close to the longest bull run in 85 years! At 62 months and counting the S&P 500 is just 2 months away from that record. That would be a nice record to have!

Overnight the Asian markets all closed higher with Hong Kong’s Hang Seng leading the way up 0.73% however the euphoria is not spreading to Europe where the market bourses there are trading on either side of unchanged from Friday but they also are trading near multi-year highs recently boosted by the ECB decision to lower interest rates. Here in the U.S. all the major indexes are trading lower but by only the barest of amounts with Dow futures down 14 points. Today will be a day devoid of economic data in fact the entire week will be “thin” until the government’s report on May retail sales on Thursday. There will be a lot of merger and acquisition news investors will have to hopefully push us higher. Remember, bull markets need to be fed. Bear markets don’t necessarily need selling but simply the buying to stop.

Energy, both oil and natural gas, was moribund on Friday. WTI closed up 18¢ at $102.66 while Brent fell the exact amount settling at $108.61. WTI has posted a loss for 2 consecutive weeks and is currently up about 4.3% year-to-date. Brent has also been down for 2 consecutive weeks but is down around 2% year-to-date. Investors will be watching the OPEC meeting in Vienna on Wednesday for indications of oil production changes by the cartel’s members. Monthly oil market reports from OPEC, the International Energy Agency and the U.S. Energy Information Administration are also due this week. This morning WTI is popping $1.03 with investors taking in not only the U.S.’ positive employment report but also the ECB’s QE. The WTI daily chart continues to be interesting as we close in on the tip of the pennant.

Natural gas is down 1.3¢ as I write. Folks there is no doubt in my mind traders are playing natty from the long side. They know storage levels are low and unlike most summers, natural gas injections will be baseloaded for the month and the cash market and consequently futures will be driven by CDD’s. The bulls are waiting for that first big heat wave or that bullish EIA storage report. So far they haven’t gotten it (see below) but they know the peak cooling requirements are still ahead of us.

My how have times changed. It was only about four years ago when Spain’s sovereign debt interest rate was so high it was unsustainable with default looking like a horrible but very real possibility. Well you’re not going to believe this. Borrowing costs on the 10 year Spanish government bond fell 4.9 basis points to 2.595% today. So what’s the big deal? This is a record level low for the 10 year. Impressive itself but, get this, it’s lower than the 10 year U.S. treasury! Yep you read that correctly. The 10 year U.S. treasury yield is about 2.601%. And the 10 year Irish government bond is also at a record low and also below 10 year U.S. treasuries at 2.403%. Interest rates are supposed to be a function of risk. Obviously other things are at work here. Absolutely amazing! Have a good day

 

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