Equities and the Economy:

• U.S. stocks meander.
• Still can’t penetrate Dow 20,000.

U.S. stocks chopped around yesterday. While the Dow fell 77 points, 0.38%, ending at 19,887 and the S&P 500 lost 8 points, 0.35%, finishing at 2,269, the Nasdaq posted a small gain of 11 points, 0.19%, closing at 5,532. The market has had a nice rally since the election but for most of December and January we’ve been range trading between 2,250 and 2,277 basis the S&P. At the 10,000 foot level it’s been chatter for about 5 weeks.

The primary economic report yesterday was the Fed’s Labor Market Conditions Index. You may not be familiar with this report but the importance here is that this index is Fed Chair Janet Yellen’s favorite labor market index. The index for December fell into negative territory, -0.3, for the first time since May 2016. A single data point does not make a trend and this data contradicts the Labor Department’s Employment Situation Report from last Friday so we’ll need another month or two to get a better idea of what’s going on here.

This morning the chatter continues with the Dow down 18.

Oil

• Oil prices get whacked.
• More countries announce production cuts.

Oil prices got bludgeoned yesterday with WTI losing a very material $2.03, 3.8%, closing at $51.98. Brent settled $2.16 lower, also 3.8%, at $54.94. Both oils settled at 3 week lows. The primary driver bringing in the selling was the announcement by Iraq stating that some of its oil hubs were exporting at record volumes in December. That data outweighed announcements by Russia, Kazakhstan and Angola stating they had begun implementing production cuts in accordance with the agreement reached last November. Russia production has dropped 100,000 bpd from December levels and Angola cut 78,000 bpd. These announcements seem to have stabilized the market for WTI is flat to yesterday, down 22¢.

Higher oil prices are encouraging global exploration. Baker Hughes reported that the worldwide count of oil rigs rose by 94 in December to 1,772. This suggests global oil production will increase in the coming months.

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices get crushed yesterday.
• Very warm weather the next two weeks.

Natural gas sold off hard yesterday with the February Nymex contract falling 18.2¢, 5.5%, closing at $3.103. The Monday morning weather forecast came in very warm which brought out tons of bears. While we just finished a very, very cold spell, the next two weeks are going to be very, very warm relative to normal. Cincinnati is going to be 18 and 20 degrees above normal next Monday and Tuesday! Houston is going to be 14 to 20 degrees above normal for the next 7 days! And the warmer than normal temperatures will be with us for the next two weeks! I’m sure those of you living in the Midwest and East don’t mind hearing that!

Enjoy the next two weeks because there’s indications that normal weather will be returning to the Midwest and east at the end of January which is causing shorts to cover and new length to enter which is taking natty 16.1¢ higher this morning.

Elsewhere

Here’s a very interesting piece of data I saw from our EIA this morning. In 2016, 24 gigawatts of utility scale new electric generating capacity was added to the U.S. power grid. Now this in itself is not impressive because there are capacity additions every year. What’s impressive is that 37% of the capacity additions, 8.8 gigawatts, was renewable capacity! 98% of the 8.8 gigawatts was solar and wind. And remember, this is utility scale capacity additions. This doesn’t include residential, commercial or institutional renewable additions.