Equities and the economy
Well the calm has ended. After a month or so of no volatility the last two sessions have been anything but with the major indexes moving in opposite and almost equal amounts the last two days. Refreshing your memory, on Tuesday the Dow closed up 222 points. Yesterday it closed down 217. Crazy. The numbers are: Dow down 217, 1.21%, to 17,711, the S&P 500 down 20 points, 0.96%, to 2,064 and the Nasdaq down 49, 1.02%, to 4,761. After having one of its best days in months on Tuesday, the Dow yesterday had its worst day since February 11th. The selling came in after Disney and Macy’s released disappointing earnings. Disney reported its first earnings miss in 5 years and revenue was below forecast. While Macy’s quarterly earnings topped expectations, revenue came in below estimates and the company lowered its full-year forecast. Macy’s stock price lost over 15% yesterday. The message investors took from Macy’s earnings was 1) catholically, worries about consumer spending, 2) parochially, the brick and mortar stores are struggling to balance the in-store shopper and the internet shopper. On a side note, Staples and Office Depot called off their planned merger after a judge sided with the Federal Trade Commission in its effort to block the deal. The result: shares of Office Depot fell 40.4% and Staples lost 18.3%. Hope you don’t have those in your portfolio.
There was no fundamental economic reports yesterday, but there was this morning. The Labor Department released its regular weekly jobless claims report noting the number of Americans who applied for unemployment benefits last week was 294,000. This was not a good number folks. This is a 14 month high and the 3rd week in a row claims have climbed. The number was also way above economists’ expectations. The yang to this ying is that claims are still below 300,000 which is a threshold associated with healthy market conditions.
This morning investors are taking the bad labor report in stride the Dow up 40, although I must caution you that this morning it was up 88 points. It’s up on two factors 1) European stocks are trading higher and 2) possibly the good news/bad news thing. More claims, Fed slower to raise interest rates.
Oil prices shot up yesterday with WTI closing up $1.57, 3.5%, at $46.23 and Brent adding even more $2.08, a material 4.6%, closing at $47.60 with both oils hitting 6 month highs. The driver of the move was the DOE’s weekly crude and products report. Expectations going into the report were for an increase in crude inventories of 714,000 barrels. The DOE number was a surprising 3.4 million barrel withdrawal. Remember, this is after the API Tuesday night reported a build in inventories of 3.5 million barrels. The rally in crude crossed into the gasoline and heating oil prices rising 6% and 4%, respectively. Pull your wallet out at the pump folks.
This morning WTI is very quiet up 17¢.
Courtesy of MDA Information Systems LLC
Natural gas prices crept higher yesterday with the June contract closing up 1.5¢ at $2.173. The calendar strips closed flat to Tuesday. Today the EIA releases its weekly storage report and the market is looking for a 56 Bcf injection. This compares to a huge injection last year for this week of 101 Bcf and the 5 year average of 79 Bcf. Looking forward, I expect weekly injections to average lower than last year because production is flat to down and natural gas consumption in the power sector is higher than last year. But before you get all bulled up, I fully expect end of season storage levels to be at record levels because we had so much gas in storage at the end of this last winter because of the record warm winter.
The weather forecasts fluctuates between below normal to above normal over the next couple of weeks which taken in whole means average consumption of natty.
Speaking of natural gas use for electric generation, Reuters reported that the power sector has burned an average of 24.3 Bcf/d so far in 2016. This compares to 23.1 Bcf/d in 2015 and the 30 year average of 18.4 Bcf/d. This is not news to my clients. I’ve been telling them this was going to happen for months, maybe years. Burn baby, burn.
The U.S. is not the only country that is having a presidential election this year. The Philippines just concluded their election and the citizens of that country elected Mr. Rodrigo Duterte, the former mayor of the city of Davao as President. He ran on a platform that he would fight corruption, restore jobs and eliminate poverty. Stating he is outspoken is a gross understatement. For example, when asked this past weekend as his campaign was coming to a close what his position on crime and drugs was he stated, “All of you who are into drugs, I will kill you. I will really kill you. I have no patience. I have no middle ground; either you kill me or I will kill you idiots.” Holy Toledo! Makes our election season look like patty-cake!