Equities and the Economy:

• Tech stocks get destroyed.
• Overall market remains healthy.

On Friday it was as if Isaac Newton discovered gravity with the Apple falling, and falling hard. The “fruit company” [Forrest Gump] stock dropped a huge 3.9% on Friday amidst a rout in technology stocks. The Nasdaq, which intraday posted a new record high, lost a big 114 points, 1.8%, ending at 6,208. The other two indexes fared much better with the Blue Chip Dow actually closing up 89 points at 21,272 and the S&P 500 slipping a couple of points to 2,432. Considering Apple, which is both in the Dow and Nasdaq, alone contributed to 50 negative points to the Dow the index did quite well. Folks, tech stocks have been on a tear for a very long time. They are waaaaay overbought. If you looked at a one-year chart of the Dow, S&P and Nasdaq, the Nasdaq was hugely higher than the Dow and S&P with the latter two basically on top of each other. We’re simply seeing some profit taking. Want more proof that the Nasdaq was overbought? Even after Friday’s rout the index is still up a huge 17% for the year. Paraphrasing the American economist Herb Stein, “That which can’t continue, won’t.”

Friday was a quiet day for economic data so let’s move on to today. The sell-off of tech has gone global with technology shares in both Asia and Europe getting hit hard, which should really not be a surprise to anyone, with all the major Asian indexes closing lower and all of the significant European indexes trading in the red, save London’s FTSE which is unchanged. Here in the U.S. the liquidation in tech continues with the Nasdaq down 43 points on the heels of Mizuho Securities yesterday downgrading Apple from “buy” to “neutral.” The Dow and S&P are faring better down slightly.

In addition to the standard economic reports, this week will feature two major news events. First, tomorrow Attorney General Jeff Sessions will appear before the Senate Intelligence Committee regarding the Trump campaign and its ties to Russia. It’s not yet known whether the hearing will be open to the public or behind closed doors. The other event is the FOMC two day meeting which concludes Wednesday. You can expect an interest rate increase of ¼% to be announced on Wednesday.

One other bit of news you’ll find interesting. On Friday Tesla passed up BMW AG and now ranks as the 4th most valuable automaker based on market capitalization ranking behind Toyota, Daimer AG and Volkswagen. Pretty amazing considering Tesla delivered fewer than 80,000 vehicles last year and has reported only two profitable quarters. GM, by comparison, sold more than 10 million vehicles last year and expects to earn more than $9 billion this year.

Oil

• Prices stabilize.
• Prices log 3rd consecutive week of losses.

After suffering back-to-back declines oil prices on Friday posted very, very marginal gains. WTI closed up 19¢ at $45.83 and Brent finished 29¢ higher at $48.15. It was a tough week for producers though with WTI losing 3.8% and Brent off 3.6% both logging their 3rd consecutive week of losses. Reminding you, oil prices collapsed on Wednesday on the DOE report showing material inventory builds in all three categories they monitor. U.S. production has increased by almost 600,000 bpd this year which is a headwind on prices despite the OPEC production cut agreement. Further, Baker Hughes reported on Friday another increase in the rig count, this time by 8 rigs. This is the 21st consecutive week of gains! There are now 741 oil rigs in operation, a level not seen April 2015.

This morning prices are finding support with WTI up 65¢. Two things at play here. First, we hit a technical bottom of around $45 last week and, second there are reports of less production from Nigeria due to a pipeline leak.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices little changed.
• Consolidating around $3.00.

Prices ended little changed on Friday with July gas closing 1.1¢ higher at $3.039. After dropping to a 2.5 month low early last week at $2.935 prices have bounced back consolidating roughly around $3.00. We’re getting into the heart of summer and A/C loads will continue to pick up which will support natural gas prices. Prices would be more bullish if not for the fact that U.S. production is creeping higher inch-by-inch. On Saturday Northeast production hit a record high at 24.5 Bcf/d. Ohio is becoming more of a player in natural gas production. Production in the state is up 250 MMcf/d, 6%, month on month to a record high of 4.45 Bcf/d.

On the demand side, longer term demand is rising, There are 6 LNG terminals under construction projected to be completed over the next 3 years and forecasted to boost demand by 9 Bcf/d. That equates to 13% of current U.S. dry natural gas production. Not an immaterial sum amigos!

This morning natty is up 1.3% with some very warm weather currently encompassing the Midwest and East for the next 5 days.

Elsewhere

As we all know, one of the big promises Donald Trump made during his campaign was to build a bigger, better wall along the southern U.S. border. Well now that he’s president, he’s trying to deliver on that promise. There’s been a lot of argument on how to pay for this wall which for discussion sake we’ll say will cost $8 billion. Well Trump just floated a funding idea that will also please the environmentalists, a group that is definitely not his constituents. He wants to cover the wall in solar panels and sell the electricity to help pay for it. Now keep in mind, and I know this from experience, solar panels in the northern hemisphere work best when facing south. Think about that one.