Equities and the Economy

It was a choppy session Friday but U.S. managed to eke out gains with the Dow closing up 34 points at 17,084, the S&P 500 up 1 to 2,105 and the Nasdaq performing the best adding 20 points to 4,830.  It was a very, very good week amigos!  The S&P logged its best week since last December rising 4 out of 5 sessions gaining 3.3%.  As of Friday the Dow rose 6 consecutive sessions booking a hefty 3.7% weekly gain, its largest since February.  The Nasdaq advanced 2.6% for the week.  There were two big drivers of equity prices last week:  the recovery of commodity prices, including oil, and the Labor Department’s jobs report.  It’s fascinating to me how investors flip flop on their interpretation of economic data.  Example, the jobs report a week ago Friday.  Bottom line, it was horrible.  So how does the market react?  A big bull run posting the biggest weekly gain for the year.  Investors interpreted the report that the Fed will delay raising interest rates, maybe even into 2016.  Those investors need to be a bit cautious for both Janet Yellen and other Fed officials, like Atlanta Fed president Dennis Lockhart, strongly suggest a rate hike is coming before the end of the year.  So if the rate hike does happen does that mean stock prices will get hit?  Would that be the “good news is bad news” for the Fed would only be raising interest rates if the economy were stronger?  Boy, do I wish I knew?!

Let’s move on to this morning.  Although the Asian markets all closed markedly higher, between 1.21% and China popping 3.28%, the major European indexes are waffling on either side of unchanged and the latter is sending early signals to U.S. investors and traders to not be aggressive and equities are trading flat to Friday’s close.  We may also be seeing some effect from the Columbus Day holiday here in the states for although the markets are open the banks are closed.

This week corporate earnings season cranks up in full gear and investors will be watching closely.  It actually began last Thursday after the bell when Alcoa reported earnings, which by the way were somewhat disappointing.  I’ll keep you posted.

Oil

After a week of steadily improving oil prices similar to equities, oil prices were wishy-washy on Friday with WTI rising 20¢ closing at $49.63 and Brent closing down 40¢ at $52.65.  After the close Baker Hughes released its weekly rig count report showing the number of active rigs continues to erode.  The number of rigs looking for oil dropped by 9 week-on-week to 605.  This compares to 1,609 rigs working the same week last year.  The number of rigs looking for natural gas fell by 6 to 189.  Together there were 795 rigs working last week compared to 809 the week before and 1,930 at this point last year, that’s a 58% drop.  That my friends is “material.”

The big news Friday was the Republican controlled House of Representatives approved a bill to lift a 40 year old U.S. ban on crude exports.  The bill was approved 261-159, with 26 Democrats joining Republicans in backing the measure, now heads to the Senate.  The measure includes a Republican sponsored amendment blocking crude exports to Iran.  President Obama has stated he will veto the bill if it reaches his desk.  He says the bill is unnecessary and argued that a decision on whether to end the ban should be made by the Commerce secretary (his appointee).  Instead of lifting the ban he said “Congress should be focusing its efforts on supporting our transition to a low-carbon economy.”

Lately I’m not sure whether oil is leading equities or vice versa but there’s no doubt they’re moving in lock-step and just as equities are little changed, WTI is as well down 18¢ as I write.  Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

After falling for a couple of weeks natural gas prices have rebounded from a three month low near $2.400 last week and are trading about 12¢ higher.  As I mentioned last week, this comparison is a bit unfair for the $2.40 low was in the October contract, a very low demand month, and we’re now trading November which we all know is a “winter” month.  Right now everyone is waiting to see 1) if the El Nino and its impact on temperatures will play out and 2) if it does, how deep into the winter will temperatures be above normal, i.e., will temps be above normal for only November and December or will it last into February and March?

Today’s forecast shows temperatures waffling between above normal and below.  The northeast is projected to be above normal this week with next week showing the first cool blast hitting the eastern seaboard followed by yet again above normal temperatures in the 11-15 day time frame.  Traders seem unsure how to interpret this forecast for natty is up 2.2¢ this morning.  Chatter.

Elsewhere

Here’s a yardstick for you.  I’m warning you now that you just might get frustrated.  Wall Street pay exploded last year to a record high.  Average salaries, including bonuses, grew by 14% in 2014 to $404,800 according to the New York State Comptroller.  Adjusting for inflation, 2014 was the third highest on record.  The average Wall Street salary was nearly six times that of the rest of New York City’s private sector, where the average salary was $72,300.  Bonuses last year were similar to the levels in 2008, which was before the financial crisis.  The average bonus, up more than 50% over the past three years, was $172,900 last year.  The only years bonuses were higher were the two years leading up to the financial crisis.  Here’s another way of looking at it.  Although the finance industry accounts for less than 5% of New York City’s private sector workforce, it accounts for 22% of all wages paid in the city. Well at least we aren’t paying $3,245 per month for a one bedroom apartment!  That’s the average rent for one bedroom apartment in New York City.  And my bet is it’s not very spacious!

Have a good day.