Equities and the economy

Boy does it feel like “sell in May and go away.” U.S. equities closed lower yesterday with the Dow off 100 points, 0.6%, to 17,651, the S&P 500 lost 12 points, also 0.6%, to 2,051 and the Nasdaq dropped 38 points, 0.8%, to 4,726. Once again though, and this is a good thing, stocks finished well off their low of the day. The selling began with China releasing weaker than expected manufacturing data and then investors began piling on after ADP released its private payrolls report for April which came in at only +156,000 which is the weakest monthly private sector job growth since February 2014. Additionally, the data point was materially below economists’ expectations of +194,000, and we all know how important expectations are for that is what’s built into the market. The importance of the ADP report is that it’s the prelude to the all-important Labor Department Employment Situation Report for April which will be released tomorrow.

Other economic data was more positive. The Commerce Department reported that factory orders rose 1.1% in March as defense orders surged. The Street had been looking for a 0.6% increases this was indeed good news. Tainting the report a tad was that nondefense capital goods excluding aircraft, a proxy for business investment, rose only 0.1%. But on balance it was a positive report.

The good news continued with the Institute of Supply Management reporting that its index of service sector activity rose from 54.5 in March to 55.7 in April. Also, Markit Economics reported their index of service activity at 52.8 beating forecasts of 52.1. Up is good. Remember, anything above 50 represents growth.

This morning we’re staring out better with the Dow up 72. We should be happy we’re trading in the green at all being European stocks are painting red, although marginally. I would be very surprised if we saw a material move in either direction for U.S. equities with the big employment report coming out manana. That’s my reference to happy Cinco De Mayo! That’s the observed date to commemorate the Mexican army’s unlikely victory over French forces at the Battle of Puebla on May 5, 1862. In the U.S. the date has morphed into another excuse to eat and drink!

Oil

After a couple days of falling, oil prices stabilized yesterday. WTI closed up 13¢ at $43.78 while Brent lost 35¢ settling at $44.62. The DOE released its weekly crude and products report yesterday it came in marginally bearish. Crude and gasoline stockpiles increased more than expected, 2.8 million and 500,000 thousand barrels, respectively, by distillates (which is primarily diesel) stockpiles fell 1.3 million barrels while forecasts were for a decline of only 100,000 barrels. However, to me the most important data point was that the DOE stated that U.S. crude oil production dropped by 100,000 last week, the largest one-week decline in 8 months and to a 20 month low of 8.8 million barrels. It’s taken way more time than the Saudi’s thought but it appears their strategy announced about a year and a half ago to not control price by curtailing production but to let the spigot flow is finally happening, which targets the U.S. shale producer.

This morning WTI is popping being up $1.58. Traders are putting behind them yesterday’s DOE report showing a rise in crude stockpiles and are focusing on a raging, out of control wild fire near Canada’s oil-sand region which has shut-in about 500,000 barrels a day. A state of emergency has been declared in Alberta with 88,000 residents of the city of Fort McMurray forced to evacuate. Now this may be a short term spike but for now It’s really bad there in western Alberta.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices rose yesterday with the June contract rising 5.5¢ closing at $2.141. $2.10 is the magic number right now for we have spent more than a week pivoting around that number. And that’s where we are this morning with natty down 2.8¢ as I write. Today the EIA releases its weekly natural gas storage report and the market is looking for an injection of 64 Bcf. Last year at this time we saw an injection 77 Bcf and the 5 year average is 64 Bcf.

Elsewhere

Snapchat, that image messaging application software product which my two teenage daughters live on, is viewed by an average of 10 to 20 million users per day. Here’s how ubiquitous the application is among young people. Two times as many 18 to 24 year olds watched the first GOP debate of the presidential election on Snapchat as watched on television. Maybe I need to get the app?!