Equities and the Economy:

• U.S. equities continue their post-election grind higher.
• Dow trades within a gnat’s eyelash of 20,000.

U.S. equities ended the week higher with the Dow closing up 65 points at 19,964, the S&P 500 added 8 to 2,277 and the Nasdaq finished 9 points higher at 5,521. The Dow got oh so close to trading 20,000 coming within 0.37 of the psychologically important threshold. Putting it another way, a 5.5¢ move in any one of the price-weighted Dow’s components would have pushed it to 20,000.

The Labor Department’s Employment Situation Report for December hogged the news spotlight on Friday. While the 156,000 new non-farm payroll jobs created was less than economists’ forecast of 176,000 and the unemployment rate held steady at 4.7%, the data point that got every one’s attention was that average hourly earnings rose 0.4% m-o-m which was well above expectations. Wage increase/pressure is one of the primary drivers of inflation and I guarantee you the Fed noted this statistic which gives argument for further interest rate increases.

It’s a slow start this morning with the Dow down 618 points while Nasdaq is flat to Friday’s close. This tells me the market is directionless this morning.

Oil

• Oil prices end little changed on Friday.
• Rig count continues to inch higher.

Oil prices ended little changed on Friday with both WTI and Brent both closing 23¢ higher at $53.99 and $57.10, respectively. Chatter. Baker Hughes released its weekly rig count report on Friday stating 7 more rigs were added by drillers last week. 4 oil and 3 gas. This is the 10th consecutive week of an increase. The total rig count is currently 665 which is 261 more rigs, 65%!, than the low back in May. That being said, it is hugely lower than the peak of 1,609 rigs at work back in the Autumn of 2014. Amazingly, even with the massive drop in the rig count U.S. oil production has only fallen 10% for its peak. This is a testament to the resilience and innovation of not only the oil & gas producers but also the service companies that serve the oil & gas producer.

This morning the bears are out in force with WTI down a material $1.33. Numerous forces are at work here. First, the strong U.S. dollar. While the dollar has stabilized, it remains near a 14 year high making commodities priced in the greenback, including oil, more expensive, 2) the rig count. As mentioned, it continues to climb. While not at windfall levels, many producers can make $50/bbl work, particularly Permian Basin producers, and 3) Iran announced over the weekend they’ve sold 13.2 million barrels of oil which had been stored on oil tankers at sea to customers, probably most of it going to India and China. This is production not included in the November 30th production agreement. They still have 16.4 million barrels in “floating storage.”

January 1st was when the OPEC/non-OPEC agreement of production cuts were to begin. We could see a lot of headline driven volatility over the next month which is when the first production data from the major OPEC producers for January will be reported.

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural Gas prices finish the week virtually unchanged from Thursday.
• Today’s weather forecast looks even warmer.

Natural gas prices ended little changed on Friday with the February Nymex contract ending down 1.2¢ at $3.285. In the winter it’s always about the weather and the EIA storage report. We only see the latter once a week on Thursday but the former we see a new every day. Although the weather was very, very cold this past weekend last week’s weather forecast was showing a big warm up for this week and beyond which pushed prices lower for the last 5 of 6 days. And the forecast this morning is even warmer for the 11-15 day time frame than last week. For the 6-15 day period from today the eastern half of the country is going to experience very warm temperatures relative to normal Houston will hit 80 on Thursday! The forecast is slaying the bulls with natty getting hammered this morning down 14.4¢.

Elsewhere

Tonight is the NCAA College Football Championship game pitting perennial powerhouse Alabama vs. Clemson. Clemson got into the championship game by beating Urban Myer’s Ohio State buckeyes 31 to 0. It was the first time in Urban Myer’s 194 game coaching career he was held scoreless. Pretty darn impressive! Tonight’s game (7 PM CST, Tampa, FL) is a rematch of last year’s classic championship game when the Tide beat the Tigers 45-40. I got to thinking, when was the last time the number 1 and number 2 teams were the same teams and met in consecutive championship games? The answer: never! That includes the BCS era (began in 1998), the pre-BCS systems in the 1990’s and the older bowl system.

Before 1993, No. 1 facing off against No. 2 in a bowl game was downright rare, much less having the same top teams meet two years in row. The two top teams in the land had only met eight times in bowl games before the sport initiated the first in a series of changes that led us to present day. Per ESPN’s Rece Davis, only twice in the history of the sport had the same two top five teams ever met in consecutive bowl games.

Tonight’s game is the third championship game since the playoff system began. Alabama is favored by 6.5.