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Morning Energy Blog – March 7, 2016

Equities and the Economy

U.S. stocks wobbled on Friday but managed to close in the green and mark a 4th session of gains. The Dow closed up 63 breaking the 17,000 market (whoo-hoo!) closing at 17,007, the S&P 500 added 7 points to close right at 2,000 (resistance) and the Nasdaq finished 10 points higher at 4,717. The big news Friday, as it always is on a monthly basis, was the Labor Department’s Employment Situation Report which showed non-farm payrolls rose a big 242,000 in February which was way above the 190,000 consensus. The always headline data point, the unemployment rate, held at 4.9%. Good news also came in the participation rate which rose to 62.9% from 62.7%. Ill news came in that average hourly earnings fell 0.1% and the average work week fell to 34.4 hours from 34.6. The data also showed that while manufacturing is in its deepest contraction since the Great Recession, job growth is strong in the construction, retail and healthcare industries.

Gold continues to climb posting a $12.50 gain on Friday to 1,270.70 per ounce which is its highest level in a year. As I mentioned last week, gold is a safe haven and its increasing price along with risky asset prices like stocks also climbing is a bit of a conundrum. However, U.S treasuries did fall last week with the 10 year yield notching its largest increase since last November. This makes sense. Treasuries, another safe haven, should fall in price, and yields increase, as money moves out of them to stocks.

This morning U.S. stock futures are pretty flat to Friday’s close being up 15 points, which is nice being European stocks are about 1% lower. Chatter, but higher is better than lower. .

This week marks the 7th anniversary of the beginning of the stock market advance that began as we exited the Great Recession. This is definitely a ”mature” bull market. Only two bull markets since 1928 have lasted longer than this one’s 84 months. The other two were from 1990 to early 2000 and the postwar march from 1949 to 1956. You may say, “Hey, the stock market just had a huge drop beginning in January. Didn’t that end the bull run?” Technically, no. Until the S&P 500 loses 20% of its value a bear market isn’t formally in the books. The recovery that began on March 9, 2009 has sustained 3 separate setbacks of at least 15%: one each in 2010 and 2011 and the one we just had ending with lows last month. During this bull run the unemployment rate has fallen from 8.7% to 4.9% and real GDP has climbed to $16.4 trillion from $14.5 trillion. The yield on the main junk bond index is currently just under 9% compared to a back breaking 21% in the panic of March 2009. In that same month the prior 12 months S&P 500 operating earnings per share were $43. Today, $104. That’s a gain of 142%! The price earnings multiple, which is a key value indictor for investors, has gone from 15.7 to a current 19.2.

Oil

Oil logged another good day on Friday with WTI climbing $1.353.9%, closing at $35.92 and Brent rose $1.65, 4.5%, settling at $38.72. Oil prices rose about 10% last week and have risen for 3 consecutive weeks which hasn’t happened since May. Brent is now higher than where it was on January 1st, however WTI is not quite there yet.

Baker Hughes rig count report on Friday showed the number of oil rigs working in the lower 48 states dropped for an 11th consecutive week, last week by 8, to a 6 year low at 392 rigs which is helping boost prices this morning to a fresh two month high with WTI up $1.05 this morning. Traders continue to pile in on the long side. The CFTC’s commitment of traders report on Friday showed that hedge funds and money managers raised their bullish bets on WTI to the highest since November.

Blog Weather 3-7-16
WEATHER BAR IMAGE FOR BLOG
Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices eked out a gain to end a bloody week closing 2.7¢ higher at $1.666. Prices have been in a month long decline dropping 56¢. This is the lowest prompt month prices since the late 1990’s. That being said, the calendar 2018 strip is up 6% off its low. Your antennae should be up. Winter is over folks with the forecast for the next 2 weeks showing nothing but above normal temperatures for the eastern 2/3rds of the nation which will kill any heating demand, and then we’re almost into April. Traders’ focus now is upon what the summer holds in form of the extended forecast which translates into A/C load and with natural gas prices so low, the implications on gas consumption in the electric generation sector. And as always, an eye on U.S. production. This morning natty is up 5¢ bouncing off multi-decade lows.

Elsewhere

Ever heard of Joseph Warren? Probably not. But we should have. Joseph Warren (1741-1775) was regarded by many in his time as the true architect of the American Revolution. He was the key figure in the Boston Tea Party. He wrote a set of Resolves that serves as the blueprint for the first autonomous American government. He delivered a speech that sparked the first battles of the Revolutionary War. He sent Paul Revere out on one of history’s most famous rides. He was the only Patriot leader, prior to the Declaration of Independence, to risk his life against the British on the battlefield. Yet remarkably, he has been largely lost to history. He was surrounded by names we are all familiar with, and yet his own name is barely ever heard these days. Interestingly, his brother went on to found Harvard Medical School, and fourteen states have a Warren County named after him.

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