Equities and the Economy
Good morning and happy National Pralines Day. Stocks rallied nicely in Europe but it was a choppy session here in the U.S. with the major indexes inching higher. The Dow closed 24 points up at 18,144, the S&P 500 added a single digit ending at 2,124 and the Nasdaq climbed 6 points to 5,160. Of note, the Nasdaq, as well as the Russell 2000, ended at record highs for the second consecutive day. The S&P has a record closing high in its sight being only 0.3% from its high. Optimism about a Greek solution has supported the market the last couple of days but locally there’s been positive economic data helping U.S. markets. Yesterday I mentioned the NAR report on Monday showed used home sales were great climbing to the highest level since 2009. This was followed up by a report yesterday showing new home sales increased in May to their highest level in 7 years beating economists’ forecasts.
Returning to Greece, divisions remain between the two parties over details of the agreement, specifically the amount of tax increases vs. spending cuts, and somewhat weighing on the markets this morning with Germany’s and France’s stock market slightly lower and pulling the Dow down 26 points. I do not envy Greece’s Prime Minister Alexis Tsipras. His job is hard enough having to negotiate with the IMF, ECB, the European Commission and the Germans, specifically Angela Merkel, but he must also deal with his left-wing, anti-austerity Syriza party. His party isn’t a traditional party but a coalition of left–wing groups with an intricate family tree formed out of doctrinal splinters and squabbles. It is those many, disparate factions that Mr. Tsipras must satisfy with any potential bailout agreement. That unusual composition has made it especially hard for Tsipras to strike a deal. When he goes to sell the deal to his party and Greece he will be under attack from the both the Left and the Right. The Left will feast on him if the deal passes because it will definitely come with austerity. The Right will chastise him if the deal fails and a Grexit occurs bringing with it economic shock and pain. He has become Hamlet. Incapable of making a decision until it is far too late and until his political death is imminent.
WTI gained 63¢ yesterday settling at $61.01 which is a two week high. Brent popped $1.11 closing at $64.45. Oil prices rose on the announcement from Defense Secretary Ash Carter yesterday while he was in Estonia stating the U.S. will spread about 250 tanks, armored vehicles and other military equipment across six former Soviet bloc nations including the aforementioned Estonia, Bulgaria, Latvia, Lithuania, Poland and Romania. Take that Mr. Putin! The defense chiefs standing with Mr. Carter all spoke bluntly about the threat they perceive from Russia with these latest military plans providing a show of solidarity across the region and NATO. This most definitely has to make ole Vladimir uncomfortable. Think about it this way. How would you feel if Russia deployed tanks just across our border with Canada?!
WTI is up another 31¢ this morning triggered by API’s report after the bell last night showing a steep 3.2 million barrel draw in U.S. crude inventories last week. Additionally, yesterday Iranian leader Ayatollah Ali Khamenei ruled out putting a halt to the nation’s nuclear program before the June 30th deadline which decreases the potential of Iran adding 1 million bpd to global supply.
Natural gas did nothing yesterday with the July contract losing 0.7¢ settling at $2.726. The trench warfare continues the bulls seeing record demand by the electric generation sector and production flat to marginally down and the bears pointing the forecast which is showing normal to below temperatures in the eastern half of the nation. By the way, the extended forecast just came out this morning which is for the July – August time frame and it is bearish showing below normal temperatures in the entire Mid-continent region of country for both months. And then we’re into September.
This morning natty is chopping around being up 1.2¢.
A milestone in the corporate world happened yesterday. Facebook is now bigger than Wal-Mart, at least based upon market capitalization. The former is valued at $242.7 billion and the latter $233.8 billion. Facebook knocked the world’s largest retailer out of the top 10 ten list of the highest-valued companies in the S&P 500 index. I hope you own Facebook. The stock is up a whopping 32% in the past 12 months. Friend me?