Equities and the Economy:

• Stocks close lower.
• Lofty forward P/E ratios and higher interest rates not compatible.

Yesterday stocks retreated on what I consider normal price action. The Dow fell 51 points closing below 21,000 at 20,954, the S&P 500 lost 8 points to 2,375 and the Nasdaq dropped 22 points to 5,849. I could point to things such as North Korea testing 4 ballistic missiles or a myriad of other things but the bottom line is that U.S. equities have been on a tear of late and forward 12 month P/E ratios are very lofty and with Janet Yellen all but putting out a press release they’ll be an interest rate hike next week, stocks need a pullback, a breather, to at least tread water for a while This is healthy. Remember, last week the S&P posted its biggest one day advance since November and have posted repeated records. Actually yesterday’s pullback is really not enough considering how far and fast we’ve come.

The only economic report of significance released yesterday was the Commerce Department’s factory orders report which on the surface looked great with orders up 1.2% in January but was tainted because the sharp increases was due to defense aircraft orders. Orders for nondefense capital goods excluding aircraft, a proxy for business investment plans, actually fell 0.1%, which is a bit disconcerting, emphasis on a “bit.”

This morning the Dow is continuing to slip down 26 points, again a “bit.”

Oil

Oil prices remain stable.
OPEC fighting a wave of investment.

Oil prices closed basically static yesterday with WTI closing down 13¢ at $53.20 and Brent settling up 11¢ at $56.01. Total chatter. OPEC, i.e. Saudi Arabia, has really got to be thinking about their strategy. Yes, when they announced the production cut agreement prices bounced $5 to $10 dollar. But due to the low prices the previous 2 years E&P companies have gotten leaner and fitter (this ain’t there first rodeo with low prices!). Now that prices are higher there’s been a modest recovery in global investment, at least per the Paris based IEA. Therefore, OPEC is fighting this investment wave and increasingly its output restrictions my result in nothing but a market share loss. If the production cut agreement is not renewed, it expires June 30th, look out below!

This morning WTI is up 36¢. More chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

• Weather forecast shifts colder.
• Prices pop.

Monday morning’s forecast came in much colder for the 6-10 day time frame which brought out the bulls. The April contract popped 7.4¢ closing at $2.901 but interestingly, there was literally no price movement in the 2018 through 2022 calendar strips. Interpretation, the shorts in the April contract got flushed out. This morning’s forecast reinforces the cold shot for the northeast for that time frame, but it’s short lived for the 11-15 brings in some above normal temps. The bears are feeling more confident on this forecast for natty is down 5.6¢. Spring season is right around the corner and from here weather related natural gas demand will wane. However, spring is also the time when nuclear plants refuel which means natural gas fired plants must pick up the load.

Elsewhere

A milestone was hit in alternative energy in 2016. 2016 was the first year ever that installed wind generating capacity was greater than hydroelectric generating capacity, long the nation’s largest renewable electricity source. Hydro has 79,985 MW’s of capacity and wind had 81,312 Mw’s. This is amazing considering that in 2000, only 17 years ago, wind generating capacity was virtually zero MW’s.