Equities and the Economy:

• Stocks post very marginal daily loss.
• Three major indexes post monthly gains.

U.S. stocks closed very marginally lower yesterday. The Dow lost 21 points closing at 21,009, the S&P 500 dropped a single point to 2,412 and the Nasdaq ended off 5 at 6,199. Chatter. It was a good month for the S&P and Nasdaq. The former climbed 1.2% in May and the latter added a hefty 2.5%. The Dow hung on to a meager gain of 0.3%. Here’s a stunning data point for you. Amazon, Alphabet (Google’s parent), Tesla and Nvidia are all up 25% or more for 2017! That is nothing less than incredible! Some of these are huge companies and to have those kinds of gains is truly astounding.

Turning to the fundamental economic data, news from the National Association of Realtors reported their index of pending home sales fell for a second consecutive month down 1.3% in April vs. March. While this on the surface this appears bearish, it really wasn’t for the decline was due once again to a reduction in inventory which fell 9% from a year ago. New listings for sale continue to lag the quicker pace of homes coming off the market.

A parochial data point was the Chicago PMI which rose to 59.4 in May. I’m sure that number doesn’t mean anything to you but the importance here is that index is at its highest level in 2 ½ years.

It’s interesting that the market has a 90% probability the Fed will raise interest rates this month. The Fed raises interest rates to slow down the economy which they measure by inflation. Inflation is extremely muted as evidenced by 1) the U.S. dollar is at its lowest exchange rate vs. a basket of currencies since October, and 2) the 10 year U.S Treasury bond yield is at a 5 week low. As I’ve said before, central banks, including our Fed, lag the market so I surmise they are catching up. What’s very interesting is the Fed is sending clear signals they plan to raise interest rates twice more in 2017 (June and one more time), but Wall Street is seriously discounting that second interest rate increase.

This morning things are extremely quiet with the Dow down 12 points. Today the big report is ADP’s Employment report which gives investors insight into tomorrow’s big Employment Situation Report for May from the Labor Department.

Oil

• Prices continue to fall.
• Prices post 3rd consecutive monthly loss.

Ever since last Thursday’s OPEC decision oil prices have been under pressure, and it continued yesterday. WTI fell $1.34, 2.7%, settling at $48.32 and Brent lost $1.53, 3%, closing at $50.31. Yesterday’s close for WTI was its lowest since May 12th. It was a lousy month for producers with May logging a 2.1% decline and marking a 3rd consecutive monthly loss. Making matters worse is that, as mentioned above, the U.S. dollar is at a 7 month low which is supportive of commodities priced in the greenback. Traders are just not convinced that the production cuts along with modest growth prospects for demand will offset U.S. shale production supply growth, at least in the near term, i.e. 6 months.

The bulls did get some fodder yesterday after the closing bell from the API. The Institute reported that crude oil inventories plummeted last week by 8.7 million barrels which was way over the expectation of a decline of 2.7 million barrels. Additionally, gasoline stocks dropped more than expected, 1.7 million barrels, with traders looking for a decline of 1.3 million barrels. Here’s the ying/yang. Inventories are creeping lower, but U.S. production continues to increase. The EIA states U.S. production is currently 9.3 million bpd which is 6.3% higher than a year ago and private forecasters are predicting that U.S. oil production could be 10 million bpd by the end of the year which would be an all-time high.

The bullish API report isn’t changing traders conviction. WTI is up 4¢ this morning. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

• Mild weather pressuring prices.
• Prices at 5 week low.

The weather forecast switching from above normal temperatures for the east to below normal and normal, i.e. mild weather, along with reports of U.S. natural gas production rising, albeit marginally, is flushing the bulls out of the market. Yesterday the July contract fell 7.4¢ settling at $3.071 which is near a 5 week low.

Today the EIA releases its weekly storage report with traders looking for an injection of 77 Bcf. If it materializes it will be the 4th consecutive below average storage injection.

There’s strong support around the $3.00 level and barring very bearish storage reports I expect that level to hold. Remember, the lower we go the more natural gas becomes attractive to electric generators.

This morning natty is dead as traders wait for the report being virtually flat to yesterday’s close.

Elsewhere

Yesterday marked the second to the final day of the preliminary rounds of the grueling Scripps National Spelling Bee. 291 spellers had the opportunity to spell two words on stage. There was one contestant who stood out: Edith Fuller of Tulsa, OK. What was different about her? That she is all of six years old! Edith is the youngest speller in the history of the competition that has a maximum age requirement of 15 years old but no minimum. Edith got words just as difficult to spell as the other kids, including “nyctinasty,” and successfully spelled both words. All the contestants took a written spelling and vocabulary test prior to the oral portion and, unfortunately, Edith’s total score was not high enough to advance to today’s preliminary rounds and championship rounds, which will be televised on ESPN2 and ESPN, respectively.

Edith was a charm in her post competition news conference answering news reporters polite questions, including asking her to list her favorite animals, and occasionally mumbling a gem. At one point she mentioned she hoped to invent a new kind of refrigerator.