Equities and the Economy

Good morning and happy National Babe Ruth Day. A day after the Nasdaq set its first record in 15 years the index marched on Friday adding another 36 points (0.61%) closing at 5,092. The index got a big boost from Amazon.com which jumped a whopping 14% after it reported a surprise profit from its cloud-computing business. The Dow and S&P 500 didn’t fare as well in percentage terms but still ended in the green with the former rising 21 (0.12%) to 18,080 and the latter adding 5 (0.24%) to 2,118. The Dow is just 1.1% below its most recent record set on March 2nd. Seriously helping the Dow was boring, old Microsoft which popped 10% after releasing earnings. As a result of the gain on Friday Microsoft became the 3rd largest company by market value in the U.S. behind those other tech companies Apple and Google.

201 companies of the S&P have reported earnings and Q1 profits are on track to post a 2.8% decline from a year ago. So you should be asking “Why are share values rising?” What’s happening is what I mentioned a few times in previous blogs and that is expectations had been set very low going into this earnings season. Analysts had predicted a 4.6% decline in profits owing largely to a stronger dollar and lower oil prices. As you can see, results are coming in better than those all-important and built-into-the-market expectations. To give you some data on the dollar’s impact on our economy, Credit Suisse estimates with all other things being equal every 10% rise in the dollar lowers exports 2.4%, or $50 billion, which in turn results in the loss of about 290,000 jobs.

As stocks have risen the CBOE Volatility Index, aka Fear Index, has fallen with its lowest close of the year on Friday at 12.29.

Overnight in Asia the Nikkei 225 closed marginally lower but Hong Kong’s Hang Seng and China’s Shanghai Composite closed markedly higher with the latter gaining a huge 3.04%. That’s equivalent to the Dow climbing 550 points! We’d take that here! European shares are all in the green with the leader by a large amount being Germany’s DAX which is up 1.32% currently. Remember, the ECB is in the midst of a QE program in Europe which is always friendly to equities.

Here in the states the premarket is looking nice albeit not nearly what Asia and Europe is seeing with Dow futures up 48. Of note, the FOMC begins its regularly scheduled two day meeting tomorrow ending Wednesday at noon EDT followed by a post-meeting press conference and communique.

Oil

WTI fell 1% on Friday losing 59¢ settling at $57.15 and marking a 6th straight week of gains (2.5%), its longest stretch since Q4 2014. Wholesale gasoline prices pushed over $2 a gallon for the first time since November and are up almost 63% from the low set in January at $1.23 a gallon. Brent went the opposite direction climbing 43¢ to $65.28 hitting a 4 ½ month high on the continued fighting in Yemen. WTI is down 28¢ this morning and pushing the Brent/WTI spread out to its widest level in several months. WTI continues to be pressured by rising crude inventories while Brent is getting a bid from tensions on the Arabian peninsula even though data indicates OPEC production is out pacing demand by nearly 2 million bpd.

Baker Hughes released its weekly rig count on Friday showing another week of declines, this time 31 rigs. The rig count now stands at 703. The rate of decline is slowing but let’s remember it was only last October, 6 months ago, the rig count was 1,609. The rig count is currently at its lowest since October 2010.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas was dead quiet on Friday, literally, with the May contract ending unchanged to Thursday at $2.531. Another example of how dead it was, the 24 month strip was unchanged from Friday at $2.991. Now that is the epitome of involatile! Volume was about a third of normal volume.

This morning the bears are out in full force with the May contract down 7.4¢. Note the May Nymex contract expires tomorrow. After a cool week this week in the Midwest and northeast spring will be in full force for the 6-15 day time frame bringing some beautiful weather. Get those golf clubs cleaned up!

Elsewhere

For lack of any other content today I’ll load you up with some trivia.

The wheel was invented thousands of year after boats, woven cloth, rope, sewing needles, baskets and even the flute.

Leonardo da Vinci could write with one hand and draw with the other at the same time.

In the 1960’s, the CIA tried to spy on the Kremlin and Russian embassies by turning cats into listening devices. The program, called Acoustic Kitty, involved surgically implanting batteries, microphones and antennae inside the cats.  Have a nice day.