Equities and the Economy:

• Dow posts a second consecutive record high.
• S&P 500 and Nasdaq close unchanged.

It was a small gain but enough for the Dow to close at a record high for a second consecutive day rising 32 points to 20,101. After closing at record highs Tuesday and Wednesday the S&P 500 and Nasdaq closed virtually unchanged with the former falling 2 points to 2,297 and the latter off 1 point to 5,655. Trading was subdued which is not uncommon after the major indexes breach new record levels. To keep us going higher we need corporations to come through and justify their P/E ratios. And they are indeed coming through. Of the 120 S&P 500 companies that have reported quarterly results so far, 78% are beating earnings estimates by a median of 5% and 57% are beating revenue forecasts by an average of 3%. It continues to be a “buy the dip” market.

Regarding economic data, the Labor Department released weekly jobless claims which rose 22,000 to 359,000 last week. This was above economists’ estimates but layoffs remain extremely low. The labor market is healthy. In fact, home builders are complaining they can’t find enough construction workers. The other report of significance was the Commerce Department’s report on new home sales which fell in December to a 10 month low. Single family homes sales dropped 10.4% last month, the most in almost 2 years, to 536,000 annualized. The reason, higher mortgage interest rates. Per Freddie Mac, the average 30 year interest rate was 4.32% at the end of December, the highest since April 2014.

This morning is moribund. The Dow is down 10.

Oil

• Oil prices close near 3 week high.
• Growing confidence OPEC is cutting production.

WTI ended near a 3 week high yesterday closing up $1.03 at $53.78. Brent settled up $1.16 at $56.24. Traders are starting to believe that global production is indeed declining thanks to OPEC. Data from Bernstein Energy showed global supplies fell 24 million barrels to 5.7 billion barrels in Q4 2016 from Q3. All this said, we’re still waffling around $53 and WTI is down 55¢ this morning, $53 is a very strong magnet currently. Traders are looking toward next week when end-of-month industry shipping and export data will be available to get a better handle on if and by how much OPEC and non-OPEC has cut production.

U.S. demand for gasoline is on track for its lowest monthly level in 5 years. For the first 3 weeks of this month gasoline demand was 8.19 million bpd, about 7.7% below the same time last year. If demand for the full month is less than 8.2 million bpd it would be the lowest demand month since April 2012 when high prices and a softer economy were part of the mix. Concurrently, gasoline inventories per the our EIA are the highest since 1995.

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas continues to trade around $3.300.
• EIA states 119 Bcf withdrawn from storage last week.

February natural gas closed up and even 5¢ at $3.382. The weather forecasts of late have shown a cold mass in western Canada potentially dropping into the U.S. which has brought in some bulls. Yesterday the EIA released its weekly natural gas storage report noting 119 Bcf was pulled from storage last week which came in right at market expectations of 120 Bcf and having no effect on pricing.

This morning the forecast has warmed in the 11-15 time frame for the Mid-Continent and West and those who bought yesterday are selling today and natty is down 9.0¢ at $3.292 being drawn into the $3.30 black hole. Importantly, the February Nymex contract expires today setting next month’s natural gas or electricity price for those of you who have not hedged/triggered.

Elsewhere

On this day in 1862, President Abraham Lincoln issued General War Order 1, ordering all land and sea forces to advance on February 22, 1862. This bold move sent a message to his commanders that the president was tired of excuses and delays in seizing the offensive against Confederate forces. Lincoln wanted to create a sense of urgency to all the military leaders, and it worked in the west. Grant captured Fort Henry and Fort Donelson. However, General George McClellan, the commander of the Army of the Potomac in the East, failed to move his troops, and McClellan was the primary reason Lincoln issued the order. McClellan had a deep contempt for Lincoln and had grown reluctant to reveal his plans to the president. Eventually Lincoln replaced McClellan on November 5, 1862. Lincoln would have done it sooner but he had to give McClellan time because the general had the backing of many Democrats.