Equities and the Economy:

After dropping 800 points at around midnight on Tuesday U.S., stocks have logged huge gains on Wednesday and Thursday with the Dow closing at a record high yesterday.  The blue chip index rose 218 points yesterday, 1.2%, finishing at 18,808. The S&P 500 gained 4 points ending at 2,167. The Nasdaq actually fell 42 points, 0.8%, to close at 5,209 and was down over 100 points intraday. The Dow is now up 8% for the year and the S&P is up 6%.

What you’re seeing here is the unwinding of the “presidential trade.” Investors had positioned themselves for a Clinton win and when that didn’t happen the boat made a hard, fast turn with fund managers quickly adjusting their portfolios. So why the big rotation? Fiscal policy. Trump made rebuilding the nation’s infrastructure, and the accompanying jobs, one of the centerpieces of his campaign. As such, investors are expecting an emphasis on fiscal spending initiatives to jump-start the economy. So who benefits? The companies that make things that if dropped on your foot will hurt! Industrials, construction and financial stocks. Evidence of this is the price of copper, one of the fundamental components of construction, yesterday hitting a 52 week high. And it was not alone. Other base metals, aluminum, lead and nickel, also hit 52 week highs yesterday. So that explains the Dow’s gain, but what about the Nasdaq’s decline? Well investors needed to raise cash to get into “infrastructure stocks” and the they got it by selling big cap technology stocks many of which are in the Nasdaq index.

So why are financial stocks higher? Because Trump said he would repeal Dodd-Frank which has hamstrung banks’ earning potential. Additionally, Wall Street believes that fiscal policy is inflationary and the yield curve has steepened, i.e. interest rates have risen on longer dated bonds. Banks borrow short term and lend long term so the wider that spread the more profits they make. The result of this? U.S. banking sector shares yesterday hit levels not seen since 2008.

After a tumultuous week U.S. equities are taking a breather with the Dow flat to yesterday’s close.

Oil

Oil prices last month popped after OPEC’s Algiers meeting but have been on the defense falling 15% over the past three weeks and are now below the price immediately before the Algiers meeting. And it’s OPEC (and Russia) that are killing themselves. Example, Iran yesterday reported they increased production in October by 210,000 to 3.92 million bpd. That the largest increase since May. Also, in October OPEC production hit a record high of 33.83 million bpd. That level is far above the 32.5 to 33 million bpd OPEC is aiming for as its production target. Add that data to the fact the Russia is also producing at record levels and it ain’t bullish. Yesterday WTI fell another 61¢ to $44.66 and Brent closed down 52¢ at $45.84.

Making matters worse for OPEC, really Saudi Arabia who is trying to put this deal together, is that the countries driving the bulk of the increase, Nigeria, Libya and Iraq, are the ones seeking exemptions from the cut. Traders see this and seriously doubt the efficacy of getting a deal done and are continuing to sell oil. WTI is down $1.45 this morning.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its weekly storage report yesterday and although the weekly injection figure came in at expectations, 54 Bcf, it is the total amount in storage that brought the bears out. Total inventories are now at 4,017 Bcf, a new record high. Last year we also saw a record, 4,006 Bcf, so as you can see, we have a lot of gas in storage. Making matters worse for the bulls is that due to the warm weather we’ve had, I expect another injection next week. And let’s not forget about the cash market. With storage so full there’s not much capacity available out there to put gas and with burns in the electric generation sector so low sellers are scrambling to find homes for their gas. The result, Henry Hub cash traded $2.06/ MMBtu yesterday.

I’m seeing some shorts cover this morning not wanting to carry their position over the weekend and natty is up 2.0¢.

Elsewhere

It’s Veterans Day today and I want to thank every veteran out there for protecting our great country and willing to sacrifice for the greater good of our nation. Freedom isn’t free. Here are some facts about Veterans Day.

• Veterans Day was once known as Armistice Day. The term comes from an armistice between Germany and Allied Nations on November 11, 1918. World War I ended on June 28, 1919 during the Treaty of Versailles. The first Armistice Day was November 11, 1919.

• The original idea behind the celebration for this holiday was parades and public meetings and also a brief suspension of businesses at 11 AM.

• On June 1, 1954, Armistice Day was changed to Veterans Day. This was due to an act of Congress approved May 13, 1938 which made November 11th a legal holiday.

• Disney made films during World War II for each branch of the government. Approximately 90% of Disney employees worked on making propaganda and training films.

• Today there are about 1.6 million female veterans.

• Arlington Cemetery has a ceremony on Veterans Day for those who died during times of war. The ceremonies are around the Tomb of the Unknown Soldier and held at 11:00 AM

• Veterans Day falls on the same day as Remembrance Day and Armistice Day in other countries.

• There is not supposed to be an apostrophe in Veterans Day.

• Many people confuse Memorial Day with Veterans Day. Memorial Day is primarily remembered for those who died, particularly as a result of battle. Veterans Day acknowledges all those who served in the military, either during wartime or peacetime.

• The word veteran comes from the nomenclature of the old English language, meaning old, experienced soldier.

• The first use of the word veteran in the English language came to use in 1789 when referring to a member of the armed forces or an ex-serviceman.

• California has more U.S. military veterans than any other state.