Equities and the Economy

Good morning. I’ve been gone three days and stocks have pulled back a bit from their record highs on Monday. On that day the Dow closed at 18,289 and yesterday it ended at 18,136 so with simple math you can see we lost 153 points or 0.8%. The S&P 500 went from 2,117, to 2,101, a loss of 16 points, and the Nasdaq fell from above 5000, 5,008, to 4,983, 25 points or 0.5%. Really all chatter. Yesterday’s volume was extremely light; the second lowest volume of the year. Everyone was on “pause” ahead of the Labor Department’s February Employment Report. So let’s get right to it because it was just released. Despite the record cold weather (February was the coldest on record based upon gas weighted heating degree days) the U.S. economy churned out a robust 295,000 jobs in February with the unemployment rate falling from 5.7% to 5.5%, the lowest level in almost 7 years and extending the best stretch of job creation since the mid-1990’s. The economy has added at least 200,000 jobs for 12 straight month, the longest streak since 1994-1995.

This latest report reinforces the economy is chugging along. It’s not crazy strong and not weak. Just right. Over the past 12 months wages have risen a mild 2% which is about 2/3rds as fast as they have grown in past recoveries. So how it the market taking the news? Well it’s the opposite of what we saw coming out of the recession where bad news was good news. Right now “good” news is being taken as “bad” news with the Dow down 97 points. Why? Interest rates. Specifically, the raising of them. This will no doubt give the Fed, especially the hawks, fodder to raise interest rates, which many investors view as negative for equities. Kind of funny how that works, eh? Also, on the employment report the U.S dollar is surging to 12 year highs vs. the euro, also on the belief interest rates will rise to the chagrin of producers of commodities priced in U.S. dollars for it makes them more expensive relative to other countries production. It makes U.S. exports more expensive.

Oil

Oil has done virtually nothing over the 3 days. On Monday WTI closed at $49.59 and yesterday it closed at $50.76. Brent settled on Monday at $59.54 and yesterday $60.48. Total chatter. WTI’s finding a comfort zone around $50 and Brent $60. This morning even with all the chaos in Libya and Iraq where it seems oil gets shut in one day, flows the next and then gets shut in again things are quiet with WTI down 79¢. Yawn.

Courtesy of MDA Information Services LLC

Natural Gas

The EIA released its weekly natural gas storage report yesterday noting that 225 Bcf was withdrawn from storage last week which was marginally higher than the expectation of 228 Bcf. This compares to a much, much smaller withdraw last year at this time of 144 Bcf and the 5 year average of 115 Bcf. Natural gas prices closed higher on the day, up 7.2¢, at $2.841 with the storage report being supportive but it was the cash market that was the real driver of prices with demand being strong on the current cold weather.

Unfortunately, today’s forecast has removed the much anticipated above normal temperatures in the eastern half of the nation in the 11-15 day timer frame replacing them with slightly below normal temperatures. It looks like the jet stream ridge over Alaska is returning which means the jet stream dips in the eastern half of the nation. Natty seems to be taking it all in stride though being down 2.1¢ as I write. Have a good weekend.