Equities and the Economy:

U.S. equities rose for a 5th consecutive session on Friday with the Dow climbing 40 points, 0.2%, to 18,848. The S&P 500 and Nasdaq also rose with the former ending up 3 points at 2,164 and the latter adding 28 points, 0.5%, to 5,237. Friday’s gains pushed the Dow to another record high. You can say what you want about the results of the election but one thing is definitely apparent, investors like the results. Evidence: The Dow booked its best week since December 2011! For the week it gained 959 points, 5.4%. That is material amigos! The S&P and Nasdaq also had a good week both gaining 3.8% for the week. For the year the Dow is up 8.2%, the S&P 5.9% and Nasdaq 4.6%. (I can see you checking your 401K).

It’s worth pointing out that this rally has not been driven by any fundamental change in the underlying dynamics but rather speculation about what the U.S. might see under a Trump Presidency. That being said, ALL markets are priced not on existing conditions but expectations based upon currently available data. In commodities that’s why they call it a future! It’s not called a present!

On the other side of the coin, bond prices are getting whacked! The perceived fiscal stimulus that investors believe the Trump administration will provide is expected to bring inflation, especially with the Fed’s currently exceedingly accommodation monetary policy. The 10 year Treasury, the benchmark bond, yield hit its highest level since December 2015. So the formula is: increase in inflation means higher bond yields which means lower bond prices. Higher equities mean your 401K is worth more. Higher interest rates help those on Social Security for increases in Social Security payments are based upon inflation.

It’s pretty quiet out there right now. While the Dow is up 28, the S&P is flat to Friday’s close and the Nasdaq is down 15.

Oil

Oil prices have been and continue to remain under pressure. They got a pop after the Algiers meeting when OPEC announced they were going to coordinate on a production freeze but that price pop has entirely eroded and prices are below where they were immediately prior to that meeting. On Friday WTI lost another $1.25 closing at $43.41 and Brent closed down $1.09 at $44.75. For the week WTI was about 3% lower and at its lowest level since August. Over the weekend Iran reported it increased output at three of its western fields by 250,000 bpd which is obviously not bullish. Additionally, the U.S. dollar has been rising and it really jumped after the election. How high? The dollar is at an 11 month high vs. the standard basket of currencies. The expectation that the Fed will raise interest rates at their meeting next month is also adding to the dollar’s strength. The market is pricing in an 80% chance the Fed will raise rates. As we all know, a stronger dollar makes commodities priced in the U.S. dollar more expensive relative to other currencies.

The woes continue for the U.S. oil and gas producer this morning. WTI is down 69¢, which is actually better than earlier when it was down a buck.

Courtesy of MDA Information Systems LLC

Natural Gas

The Nymex December natural gas price ended little changed on Friday losing 1.3¢ to settle at $2.619. Natty prices are down more than 15¢ over just the last couple of trading days. It’s all about the weather. The beautiful weather we all have been experiencing has resulted in almost no heating degree days which should be kicking in and increasing the deeper we get into November.

You regular readers know that I also pay very close attention to the calendar strips and interestingly even though the front month was lower, on Friday the strips all closed higher led by calendar 2017 which closed up 3.1¢. The calendar strips are what are used to price your electricity and natural gas prices, not the front month contract.

I said it was all about the weather and that’s what’s causing a price pop this morning with the December contract up 12.8¢. For the first time this season below normal temperatures are forecasted in the east, specifically the southeast. Natty prices have recently been getting pounded and the boat is heavily listing to the short side and a correction is needed.

Elsewhere

Ever heard of “Singles’ Day”? It is a quirky holiday celebrated annually in China. It is and entertaining festival that is widely celebrated by young Chinese people to celebrate the fact they are proud of being single and celebrated on November 11th which was last Friday. That date was chosen because the number “1” resembles an individual that is alone, i.e., four 1’s. The holiday originated from Nanjing University in 1993. Upon graduating, these college students carried the university tradition into society. Singles’ Day serves as an occasion for single people to party with single friends. So what is the point here? Singles’ Day has also become a day when singles don’t only party, but buy stuff. How much stuff on-line? Think Cyber Monday. Times four! Alibaba, China’s largest ecommerce company said sales by thousands of retailers on its platform passed $13.4 billion in the first 15 hours of the event. This is four times the $3 billion the research firm comScore says Americans spent in total last year on Cyber Monday, our country’s biggest online shopping day. Like Cyber Monday, on Singles’ Day companies offer deep discounts on clothing, smartphones, travel packages and other goods. The Chinese government loves it because it gives a boost to the Communist Party’s efforts to nurture consumer based economic growth. And the data shows the growth. Ecommerce sales in China have skyrocketed rising by 26.1 % in the first 9 months this year. He Mei, a woman in her 30’s said “Online shopping is getting more and more common. Young people, especially those in their 20’s, don’t really go out and buy things. They pretty much buy everything online.” Wait a second. Are we talking China or the U.S. here?!