Equities and the Economy

Good morning and happy National Star Wars Day. U.S. stocks bounced back sharply with the Dow gaining 183 points (1.03%) closing back over 18,000 at 18,024, the S&P 500 up 22 points (1.08%) to 2,108 and the Nasdaq added 64 (1.29%) and once again over 5,000, albeit barely, to 5,005. We’ll always take “up” days but it bears mentioning that Thursday’s losses were greater than Friday’s gains. Actually, it wasn’t a very good week for the Dow lost 0.3%, the S&P finished 0.4% lower and the Nasdaq ended the week down 1.7%. The fundamental economic data was neutral with both the Institute of Supply Management’s manufacturing index for April and the University of Michigan’s consumer confidence index, also for April, coming in at exactly Wall Street’s expectations. So what we had Friday was investors bargain hunting. The Nasdaq had been down 4 consecutive days with the biotech sector having been absolutely pounded for 5 straight days. I usually don’t mention individual stocks but when you’re the biggest company in the world by market capitalization your stock must be followed because of its impact on the bellwether indexes. On Friday Apple provided a big boost to the Dow and Nasdaq jumping 3%, its biggest daily percentage gain since January and unlike the major indexes, recouping all of its Thursday losses (2.7%) and more.

This morning U.S. equities are beginning the week nicely with Dow futures up 50 getting a boost from some positive fundamental economic data our of Europe with reports showing manufacturing in April in Germany and the entire Eurozone growing more than economists’’ expectations.

Made in the U.S.A. is hot again! 60,000 manufacturing jobs were added in the U.S. in 2014 either through “reshoring” or foreign direct investment in which foreign companies move production to the U.S. Why is 2014 significant? Because 2014’s net increase of 10,000 jobs was the first net gain in at least 20 years! So what’s the catalyst behind the trend? When it comes to where to manufacture the most common denominator is wages and wages have been escalating in traditionally lower cost countries, including China, pushing companies to reassess their sourcing strategies. Wages are important but they’re not the lone consideration. There are also shipping costs and import duties to consider. Additionally, companies increasingly want to make products closer to where their customers are and react to trends and ship faster. As an example of how competitive the U.S. has once again become, Boston Consulting Group ranked the U.S. number 2 in cost competiveness behind only China among the world’s top 10 export economies. Helping to increase the U.S.’ competitiveness have been real estate, natural gas and other energy prices which have applied downward pressure cost pressure in the U.S. Thank you George P. Mitchell (Google him).

Oil

After making big gains last week oil traders took some chips off the table ahead of the weekend and WTI ended down 48¢ at $59.15 and Brent fell 32¢ to $66.46. Note how close WTI is to $60. It was only 6 weeks WTI traded $42.02. That’s a 41% increase in a month and a half. As I say, “That’s material!” If you’re thinking about getting long oil you just might want to delay your entrance. The CFTC data from last week showed that hedge funds and other large speculators have a record breaking sum of Brent futures and options contracts on equal to almost 265 million barrels. This is the 5th week in a row they’ve increased their long position. They’ve not neglected WTI for the net long position there is equivalent to 276,051 contracts and when combined with Brent positions the net long is the highest level since records beagen in 2011. Trading not only requires you pick the correct price direction but it’s also critical to get the timing of the entry proper. I’ve seen many traders stopped out not because they had the trend wrong but ill timed the entry of the trade. For oil right now the boat appears to be listing heavily to the long side.

This morning WTI is starting the week out quietly down 17¢.

Courtesy of MDA Information Systems LLC

Natural Gas

After a big up day on Thursday on the heels of a bullish EIA storage report natural gas returned to its more sedate ways closing up 2.7¢ at $2.776. Natty prices popped more than 35¢ (15%) last week with most of that on Thursday and are trading at a 6 week high. And back to that $2.70ish level, which is what we’re close to this morning with natty down 1.2 cents as I write.

Baker Hughes released it weekly rig count report of Friday noting the number of active oil rigs in the U.S. fell yet again, this time by 24 to 679 and currently at the lowest level since 2010. The combined oil and gas rig count fell by 22 to 905, the lowest level since July 2009 which was the nadir of the recession. A picture, or in this case a graph, is worth a thousand words. Scroll down. Note where the rig count was at this time last year. Things happen fast in energy which is why I continually advise my clients to be prepared to capture an opportunity in the market. If you begin the process when you see the opportunity, you will miss the opportunity.

Elsewhere

Saturday was one of the greatest sports days in American history. You had the Kentucky Derby, the NBA playoffs, the NHL playoffs and then of course the culmination of the day which was the big fight for the worlds’s welterweight title between Floyd Mayweather and Manny Pacquiao. I’m sure you know who won but here’s some facts you may not know. Revenue from the fight hit $400 million with about $180 million going to Mayweather and $120 million going to Pacquiao. Doing some simple math, Mayweather made over $83,000 per second! The Las Vegas Convention and Visitors Authority estimates the fight will have an economic impact on the region of more than $150 million, and that excludes spending on gaming. The cheapest seat at the fight was over $3,000 with the most expensive seat going for over $350,000! And let’s not forget the pay per view cost of $100, and that’s you and I at home! And finally, it you wanted ad space on Manny Pacquiao’s shorts it would have cost you a cool $2 million.  Have a nice day.