Equities and the Economy: 

• Dow and S&P have biggest percentage loss in 2 months.
• Energy and progress on tax reform blamed.

Well guess what folks? Stocks do go down. U.S. equities fell yesterday for the 4th of 5 sessions with yesterday’s losses the largest of the 4 days. The Dow fell 138 points, 0.6% and the S&P 500 lost 14 points, also 0.6%, to 2,565. Both indexes had their worst day since September 5th. Here’s a data point for you. Yesterday the S&P marked the first time in 50 sessions that the it fell at least 0.5% in a single day putting an end to its longest streak since 1968. Again, we’re way overdue for pullback to relieve the “overbought” conditions that currently show up in so many metrics.

Yesterday’s market was weighed down by the energy sector with oil prices falling as well as lingering concerns about tax reform. This market is so overbought that not near perfect, but perfect, conditions must exist for equities to go higher. Energy and tax reform are basically excuses for investors to take profits.

Regarding tax reform, on Tuesday the Senate Finance Committee unveiled major changes to its tax legislation including a repeal of the Obamacare individual mandate. Uncertainty over the issue grew after Republican Ron Johnson said he wouldn’t vote for the plan putting its odds of passing into further question. Today House Republicans will vote today on their tax reform bill.

This morning the Dow is up 69 points on the coattails of European stocks which are rebounding after their longest losing streak of the year.

Oil

• Prices end near two week lows.
• EIA report surprises with crude build.

Oil prices logged their lowest finish in nearly 2 weeks yesterday with WTI closing down 37¢ at $55.33 and Brent falling 34¢ settling at $51.87. Sellers came in after the EIA released its weekly crude and products report noting crude inventories rose last week by 1.9 million barrels contrary to an expected decline of 1 million barrels. Adding to the bearish sentiment was both gasoline and distillate stock data. Gasoline inventories rose by 900,000 barrels with traders looking for a drop of 1 million barrels. Distillates fell by 800,000 barrels vs. forecasts of a decline of 2 million barrels. So while this was an overtly bearish report, it was not as bearish as Tuesday’s API report so a lot of bearishness was already priced in.

Refinery utilization rose by 1.4% to 91%, well above the 5 year average of 88.7%. Interpretation: the “crack spread” between the price of crude and refined products is wide enough for refiners to make a nice profit.

The EIA also reported the U.S. crude oil production rose 25,000 bpd last week to 9.645 million bpd. That is the largest weekly increase since 1983. Drill baby, drill!

This morning oil prices are stabilizing with WTI down 18¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Weather forecast continues marginally warmer.
• Storage report today.

Yesterday morning prices were markedly higher trading as high as $3.153 with the morning forecast continuing to show cold weather for the major gas consuming parts of the U.S.; that would be the Midwest, MidAtlantic and Northeast. And then the noon forecast update came out. It showed a warmer trend and traders came in whacking natty and at the ending bell December gas closed down 2.2¢ at $3.080.

Today is Thursday and we all know that means the closely watched EIA storage report comes out at 9:30 CST. The market is looking for a 12 Bcf withdrawal. It a withdrawal does materialize, it would be the first of the season. Last year at this time we saw an injection of 34 Bcf and the 5 year average is an injection of 12 Bcf.

This morning the forecast for the eastern half of the U.S. remains supportive of prices. Natty is up 2.2¢.

Elsewhere

We’re still celebrating a World Series victory down here. The first ever. It only took 55 years! Continuing with the baseball theme, yesterday Max Scherzer of the Washington Nationals won the National Leagues Cy Award. Incredibly, this is Scherzer’s 3rd Cy Young. Putting this in perspective, there have only been 10 pitchers in history to win 3 Cy Young Awards! Well done Max! Well done. In the American League Corey Kluber of the Cleveland Indians won the Cy Young. It’s his second Cy Young. Congratulations to both great pitchers!