Equities and the Economy:

• Tech rout continued.
• Dow snaps 3 day gain.

All three major U.S. indexes closed lower yesterday weighed down by a second straight session of firm losses in technology shares. The Nasdaq once again posted the largest losses closing down 32 points, 0.5%, at 6,175 suffering its worst two session clobbering since September. Looking at it from the glass is half full point of view, the tech heavy index bounced back strongly from being down 97 points. The Dow, which had logged three days of small gains, closed down 36 points at 21,236 and the S&P 500 once again was virtually unchanged losing a meaningless 2 points ending at 2,429.

What sparked the so-called tech wreck isn’t exactly clear but what’s very clear is that the Nasdaq has been on a tear and overbought. The Dow is up 7.5% on the year. The S&P up 8.5%. The Nasdaq, up a huge 15%, and this is after the sell-off. Look at these P/E ratios. The S&P 500 P/E ratio is 22. Amazon’s is 182 and Netflix is 201!

What many people are pointing to, and this is always done in wonderful retrospect, is that on June 9th Goldman Sachs released a research report noting that the FANG’s (Facebook, Amazon, Netflix and Google) were so far from the mean that reversion risk is increasing, i.e. stock prices falling. The fact it was Goldman that published the report is not insignificant. You can say what you want about Goldman, but people pay attention to what they say.

You’ll note that even with the carnage in the Nasdaq the Dow and S&P performed well. What we’re having here is not a full-fledged capitulation but a sector rotation taking profits in tech and placing that money in other places with better growth opportunities.

By the way, even with the sell-off global stocks are still trading less than 0.8% from their all-time high.

The only fundamental economic data was from the Conference Board on their Global Economic Outlook. Comments by the Board’s chief economist are more important than the numbers. “Strong consumer and business confidence, strengthening stock markets, a turnaround in the global industrial cycle, and a recent rise in the rate of global trade all point to strengthening cycle dynamics.” I hope he’s correct.

Today Attorney General Jeff Sessions appears before the Senate Intelligence Committee and the FOMC begins its two day meeting today. There will be a ¼% interest rate increase announced tomorrow. Bank on it.

We’re getting a nice bounce this morning with the Dow up 38.

Oil

• Prices close marginally higher.
• EIA forecasting shale oil production to increase 2% in July.

Following last week’s 4% drop oil prices stabilized yesterday with WTI closing up 25¢ at $46.08 and Brent added 14¢ at $48.29. Prices were higher most of the day but then just minutes before the close the EIA released a report they expect oil production from the seven major shale basins to increase 127,000 bpd in July to 5.5 million bpd. That’s the 7th consecutive month of increases.

Overnight the Saudis announced they were reducing deliveries to their Asian customers in July by 300,000 bpd. If I was a bull I’d be worried because this bullish news is doing nothing to prices. WTI is down 9¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices continue to consolidate.
• EIA states shale natural gas production to increase by 1.3% in July.

Natural gas prices ended little changed yesterday with July gas ending down 1.5¢ at $3.024. Complete chatter. Prices have now spent 2 weeks waffling around the $3.00 level.

In the same aforementioned report the EIA forecasted shale produced natural gas production will rise by 684 MMcf/d, 1.3%, in July to 51.7 Bcf/d. This marks the 6th consecutive monthly increase. The Permian, Haynesville and Eagle Ford are the major contributors.

More chatter this morning. Natty is down 0.6¢.

Elsewhere

It’s well known that China has a serious air pollution problem. If the weather is right (or wrong!) the air in some of the big cities becomes gray and you can’t see the sun. It’s downright eerie! Recently China has been investing heavily in renewable energy to reduce their carbon footprint, including the solar project below. So you say “So what. Another solar project. What’s the big deal?” Well this one is unique. It’s built on water! A lake specifically. In fact, it’s the worlds’ largest floating solar energy plant. When at full capacity the plant can produce up to 40 megawatts which is enough to provide light and air conditioning to much of the city nearby. Time reports the provincial government wants to expand the effort to a dozen sites, which collectively would produce the same amount of power as a full-size nuclear reactor. Got to admit. This is pretty cool.