Equities and the Economy

FINALLY. A good day! And a big day! The Dow closed up 228 points, 1.41%, to 16,379, the S&P 500 added 32 points, 1.67%, ending at 1,922 and the Nasdaq rose 89 points, 1.97%, to 4,615. As good as it was, and up is way better than down, the Dow captured back only 62% of Wednesday’s losses. Gains were across the board but it was the beaten down energy sector that was the shining star with oil prices rallying. It’s earning season and the financial organizations reports are under close scrutiny for they are being looked upon as the best performing sector in Q4, and analysts want to confirm it. In that vein, yesterday JP Morgan reported upbeat earnings which brought in buyers to the general market And I’ll beat the drum again, the market is oversold and the “boat” is listing heavily and needs righting.

Fundamentally, the important report yesterday was weekly jobless claims which came in a bit higher than expected at 284,000 compared to the previous week’s 277,000. Claims are still very, very low but they have been inching up of late. Additionally, this data must be taken with a grain of salt because we’re talking about December and data in December can get, as is said in the south, “squirrely.”

I was hoping it would take more than one day to right the boat but it appears that yesterday was nothing but a dead cat bounce for U.S. equities are getting annihilated this morning with the Dow down 497 points. Two data points are being blamed. First, oil prices are once again falling which I’ll discuss below. Second, December’s retail sales data was released this morning coming in down 0.1%. Ex-auto sales, retail sales also fell 0.1%. The Producer Price Index fell 0.2% after rising 0.3% in November meaning inflation is going in the wrong direction of the Fed’s 2% target. These are not good numbers.

Ok, so what is the target? 1,867 to 1,850 level basis the S&P 500. This was the August 25th intra-day low and close. We materially break 1,850 and it ain’t gonna be good folks.

Oil

Yesterday oil prices rose WTI closing up 72¢ at $31.20 and Brent up 72¢ settling at $72. Similar to equites, the market was way oversold and was vulnerable to a correction. And that appears to be that’s all it was for oil prices are getting hammered this morning and trading at fresh 12 year lows with WTI trading below the obscene number of $30/bbl. The market is bracing for increased Iranian exports with the possibility of the lifting of sanctions within days. The International Atomic Energy Agency could issue its report on Iranian compliance on an agreement to cub its nuclear program during a meeting today in Vienna potentially triggering the lifting of sanctions. Iran has stated they will increase supply by 500,000 bpd within weeks of the ending of sanctions. Increasing supply in juxtaposition with lessening global demand is not a bullish formula. Additionally, tensions have increased between Iran and Saudi Arabia over the latter’s execution of a Shiite cleric so there is very, very little chance of the two countries agreeing on production limits. This morning WTI is getting hammered being down $1.38, 4.4%. Ugly.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices got whacked yesterday closing down 13.0¢ at $2.139. Prices got the one-two punch yesterday being down very early in the morning on a warmer weather forecast and then fell even more after the EIA released its weekly storage report which was bearish. The market was looking for a withdraw of 180 Bcf and the actual number was a 168 Bcf withdrawal. Over the past week natural gas prices have erased nearly 50% of their past months more than 80¢ rally. The bulls continue to get no love this morning from the weather forecast which shows warm weather slowly and continuing to build over the eastern half of the country. Natty is down 2.7¢ on the forecast.

Elsewhere

It continues to be a very weird period for weather. Record strong El Nino. Temps above freezing at the North Pole. Now this. Did you know there’s a hurricane in the Atlantic right now? Yep. Hurricane Alex blasted into the record books yesterday as the first Atlantic hurricane to form in the month of January in more than 75 years. The storm, with gusts up to 85 mph (category 1) was expected to bear down on the Azores Islands off the coast of Portugal today. Only two other hurricanes have appeared in January since record keeping began in 1851. Hurricane Alice formed in December 1954 and carried into the following January. The last time a hurricane formed in January was 1938. Now don’t get anxious. According to NOAA an early hurricane does not necessarily portend an unusually active storm period during the Atlantic hurricane season from June through November. That forecast will be determined by weather conditions not yet seen.

Have a good weekend.