Equites and the Economy

U.S equities closed mixed to higher on Friday digesting the Labor Department’s Employment Situation report. The Dow gained 47 to 17,910 and the Nasdaq climbed 19 to 5,147 while the S&P 500 lost a point. Although the S&P fell, all three major indexes posted their 6th straight week of gains with the Dow up 1.3%, the S&P up 0.8% and the Nasdaq up 1.7%. Refreshing your memory of Friday’s labor report, the government reported that 271,000 jobs were created in October, easily beating economists’ expectations of 182,000 and the unemployment rate fell 0.1% to 5.05%. Very importantly, annual average hourly earnings rose 0.4%, its highest since 2009. Bottom line, the report blew expectations out of the water, and will give the Fed the rationale to raise interest rates next month. Quoting our Fed Chairperson, a December rate hike is a “live possibility.”

Let’s just move on to today for the Dow is down 168, but I don’t it’s a function of Friday’s employment report but more of the lousy report out of China showing exports there fell 6.9% y-o-y in October and down for at 4th month. Also, imports shrank 18.8% y-o-y culmination in a record high $61.6 billion trade balance. The driver here was that oil imports fell to the lowest level in 5 months. China has been stockpiling oil in reserves, similar to our Strategic Petroleum Reserve, which was helping to support prices. Also, as I mentioned, the market has rallied for 6 straight weeks and is in need a minor correction.

Oil

On Friday oil prices continued their slippage with WTI closing down $0.91 at $44.29 and Brent off $0.56 to $47.42. Oil prices rallied a bit over the weekend on words from Saudi Arabia’s oil minister Ali al-Naimi stating global oil markets will be better balanced next year on growing demand particularly from Asia. However, with equities falling this morning its putting some pressure on WTI with it being down 37¢. The rig count continues to fall. Baker Hughes reported late Friday that the number of rigs looking for oil dropped by 6 to 572, the 10th consecutive weekly decline. Putting this in perspective, 1,568 rigs were drilling for oil at this time last year.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas did absolutely nothing on Friday closing up 0.7¢ at $2.371. All the strips barely moved as well. The fact we’re going to have an El Nino this winter, which should translate into a warmer than normal winter for the upper Midwest, is now built into this market. The question now is, how long will the above normal temperatures continue? Will we see the warm temps into Q1 2016, or not? Only time will tell. This morning the forecast is once again coming in warm for the east, particularly in the 11-15 day time frame, and natty is feeling it being down 7.3¢.

Elsewhere

You regular readers know I like commenting on housing because it is near and dear to so many of us. As I’ve mentioned numerous time over the last year, the housing market is recovering. However, one segment remains stubbornly weak. That is the share of first-time buyers. In fact it’s so weak right now that it’s at the lowest level in three decades, just 32% of all purchases, per the National Association or Realtors. The share of first-time buyers should be higher being mortgage interest rates are historically low, job prospects for the college educated are healthy and the fact renting is becoming more expensive making the economics of buying more attractive. Unfortunately, there are too many hurdles impeding first-time buyers. Those aforementioned high rent rates are making it more difficult to save for a down payment, there’s scarce inventory for new and existing homes in their price range, and it’s still too difficult for some to get a mortgage. That all being said, however, the primary deterrent was debt, with more than half citing student loan debt as the culprit.

The report comes as home ownership in the U.S. sits at the lowest level in half a century at 63.4%. A few things have not changed though. The median age of buyers is 31, sellers is 54 and the share of multi-generational households buying is 13%.

The median time on the market for recently sold homes was four weeks for the second consecutive year. This is far less time than historical norms and is due to the low inventory of homes for sale that plagues most of the country. The market continues to be dominated by married couples who are seeing their household income increase.