Equities and the Economy

U.S. equities began the day flat to down but ended on a nice bounce. The Dow closed 104 points higher, 0.6%, at 17,369, the S&P 500 added 10, .048%, to 2,022 and the Nasdaq gained 19, 0.38%, at 4,952. The intraday price action was good being we bounced back from being down 120 points early in the session. Yesterday’s gain was a welcome breather after last week’s 3.8% loss, the biggest weekly loss since August. I watch volume for it provides some sense of the conviction of the action and yesterday, an “up” day, it was good with the volume being the highest in almost three months. The main indexes have been trading in lock step with oil prices over the past several sessions and kept with that theme yesterday with WTI and Brent prices stabilizing.

There really wasn’t any major economic reports yesterday to influence the market fundamentally. Again, it’s the FOMC’s meeting today and tomorrow that is in sharp focus for investors. If we’re to get a Santa Clause rally its’s got to happen now for traditionally it has occurred in the last two weeks of December. And we just might be getting that holiday present for Dow futures are up a sweet 160 points.

Looking around the world, the Asian markets all closed down with China’s and Hong Kong’s moves marginal but Japan’s Nikkei did get whacked falling 1.68%. Fortunately, the negative sentiment did not spread to Europe with the major indexes there up materially between 1.57% and 2.20% with Germany’s DAX having the largest gain. The ZEW report there, which is a survey and similar to the Fed’s beige book only limited to the financial sector, came in quite strong topping economists’ estimates. The same report showed an increase for the first time since September for the entire eurozone. The big gains in European stocks is what’s pushing the U.S. market higher.

By the way, I will say that if the Fed surprises the market and we does not announce a rate increase equities will post a massive rally.

Oil

As mentioned previously, oil prices stabilized with WTI rising 69¢ closing at $36.31. Brent closed flat, actually down a penny, at $37.92. WTI’s price action was positive for like equites it was down $1.20 in the morning and recovered nicely. As I stated, the theme of late is that equity prices are highly correlated to oil prices with the latter leading. WTI had been egregiously oversold evidenced in the commitment of traders report and when short term traders couldn’t push it down any more aggressive short covering came in. WTI is up 46¢ this morning which doesn’t warrant the big move in equities. The latter is being pushed higher by the European markets. Today the API releases its weekly data after the bell which could cause a big move.

Courtesy of MDA Information Systems LLC

Natural Gas

Just when you think the weather couldn’t get any more bearish it does with the weather forecast yesterday morning coming in warmer from last Thursday and Friday for the 11-15 day time frame, and crushing the bulls. When the closing bell rang natty was down 9.6¢, 4.8%, at $1.894, the lowest price in almost 14 years! Specifically, it was way back in February of 2002 the last time we saw prices this low. By the way, that was about 9 years before electricity was deregulated! Looking at the forecast it continues to be great for golfers and horrible for E&P companies with the eastern half of the nation ridiculously warm, like 15 degrees above normal! I’m taking my two daughters to New York City over Christmas and am wondering if I should pack shorts!

This morning natty remains under pressure being down 3.9¢, a fresh 14 year low.

On another note, natural gas exports to Mexico hit a record of 3.7 Bcf/d. This number will be 50% higher by 2018.

Elsewhere

It was June 6, 1944. Allied troops hit the beaches of Normandy to begin a drive across France and into Germany, and the soldiers at Utah Beach had a very bad start. Due to a navigational error they landed on the wrong inlet there. Thankfully, they had a battle-hardened brigadier general to lead them in correcting the mistake. Instead of panic setting in, the troops followed their leader without hesitation, for he was the first allied general to wade ashore on the entire Normandy beachhead. It had taken two verbal requests and one written message from the fighting general to headquarters before he was allowed to accompany his troops in the Utah Beach landing.

Quickly assessing the situation and seizing the initiative and advantage, the fighting general directed the remainder of his division into the “new sector” by yelling, “We’ll start the war from here!” He and his troops overwhelmed the Germans defenses and drove inland. They then proceeded to outflank the Germans on their initial objective, clear the beachhead, and link up with airborne assault forces with fewer casualties than any of the divisions on the other four beachheads. Armed with only a pistol and walking with a cane, due to arthritis, the general led several assaults along the beachhead in what Lieutenant General Omar N. Bradley, commander of the U.S. First Army and of the overall amphibious operation, would later describe as the single bravest act he witnessed in the entire war.

So highly esteemed were the generals exploits on the beach that five weeks later word came that he had been promoted to major general and reassigned to command another division. Unfortunately, the general never assumed his new assignment, for on the day the message came the fighting general died of a heart attack.

He was buried on the battlefield of Normandy. Back in the States his widow accepted his Medal of Honor from her husband’s distant cousin, President Franklin Delano Roosevelt, who said simply, “His father would have been proudest,” and indeed he would have been. For you see General Theodore Roosevelt Jr. had more than matched his father’s charge up San Juan Hill by choosing to lead his men himself through the horrors of the invasion of Normandy.

Have a nice day.