Equities and the Economy:
• Q2 GDP revised up.
• S&P, Nasdaq and Russell post yet another record high.
U.S. equities wrapped up last week, the month and quarter on a high note with the S&P 500, Nasdaq and Russell 2000 hitting all-time highs on Friday. The S&P gained 9 points to 2,519 closing at a record for the 39th time this year. The benchmark index gained 0.7% for the week, 1.9% for the month and has risen for 8 consecutive quarters gaining 3.9% since July. The Nasdaq closed at a record 50th time this year rising 43 points to 6,496. The tech-heavy index rose 1.1% for the week, 1.9% for the month and 5.8% for the quarter. The small cap Russell 2000 rose 2 points to 1,491 marking its 21st record high in 2017. The index was up 2.8% for the week, 6.1% for the month and 5.4% for the quarter. The Dow closed up 24 points on Friday at 22,405 missing its record by 7 points. The blue-chip index only rose 0.3% for the week but posted solid monthly and quarterly gains of 2.1 and 4.9%, respectively. It was another very good month, especially with it being September which historically has shown it can be very unfriendly to investors.
On the fundamental front, the Commerce Department on Friday reported that consumer spending rose 0.1% in August and personal income rose 0.2% for the month, both being right on economists’ consensus. The personal consumption expenditures index, importantly, the Fed’s preferred measure of inflation, rose 0.2% for the month and 1.4% on an annualized basis. Core CPE, which excludes food and energy, rose 0.1% for the month and 1.3% for the 12 months. OK, that’s a bunch of data, but what does it mean? The importance here is that inflation is running below the Fed’s target of 2%. This makes it really hard for the Fed. Janet Yellen has been talking about raising interest rates one more time before the end of the year despite the low inflation data. It appears the Fed wants to “get ahead of the curve” with respect to inflation.
Here’s the bottom line folks. So far this year earnings have been good and fundamentals have been “supportive.” What we have is a “plow horse economy.” It’s not racing forward but just continues to grind better.
This morning the plow horse is back in the field. The Dow is up 33.
• Oil prices post first quarterly gain of 2017.
• Traders focusing on events in northern Iraq.
On Friday oil prices ended little changed with WTI closing up 11¢ at $51.67 and Brent adding 13¢ closing at $57.54. The WTI front month contract was up about 2% for the week, 7.7% for the month and 10.5% for the quarter. Brent gained 1.1% for the week, 8.8% for the month and a whopping 16.6% for the quarter. Brent had its 5th consecutive weekly gain and is on its longest weekly bull since June 2016. Gasoline prices were up 14% for the quarter.
The drivers pushing prices higher have been primarily data showing the global supply/demand coming into line with the 5 year average. On Friday OPEC said commercial inventories have fallen by nearly half of the target since the beginning of 2017 which leaves about 170 million barrels to go. The other event, which is of late, was the Kurdish vote for independence, which passed overwhelmingly. Turkey has threatened to shut the pipeline flowing from northern Iraq to its port which would affect about 500,000 bpd. Iraq’s central government has called on other countries to stop buying oil from the Kurds.
Baker Hughes released its regular rig count report on Friday noting drillers looking for oil added 6 rigs which is the first time the oil rig count has increased in 7 weeks.
This morning oil is getting whacked with WTI down a big $1.33 on a Reuters report that OPEC production in September rose by 50,000 bpd and compliance to the OPEC production cut agreement fell 3% to 86%.
Courtesy of MDA Information Systems LLC
• Prices end little changed.
• Focus this month will be on winter weather forecasts.
Natural gas prices ended little changed on Friday with the November contract slipping an even penny to $3.007. Natural gas prices were down 3.5% for the quarter. On Friday Baker Hughes note the gas directed rig count dropped by one.
Over the weekend U.S. natural gas production averaged 74.5 Bcf/d which is only 0.1 Bcf/d below the record high set last month. That data in conjunction with a very mild forecast for the next couple of weeks is pressuring natty down a hefty 7.9¢ as I write.
This month most of the winter weather forecasts will be released by the forecasting services which will definitely influence traders position taking for this winter.
“Life is too short to be living somebody’s else’s dream.” That is a quote from Hugh Hefner who died at 91 last Wednesday. It sums up not only Hefner’s legacy, but the distinctly American myth he embodied. In January 1952, Hefner left Esquire after being denied a $5 raise. In 1953, he took out a mortgage on his home, got a bank loan for $600, and raised $8,000 from 45 investors, including $1,000 from his mother, to launch Playboy, which interestingly enough, was originally going to be called Stag Party. Here’s some interesting facts you may not know about Hugh Heffner.
• Hefner owns the Guinness World Record for the longest career as editor-in-chief for the same magazine.
• He served in the U.S. Army form 1944-1946.
• He was a big proponent of Viagra (that is sooo tempting to comment on).
• He had an IQ of 152 as a child.
• Hefner chose a rabbit as the Playboy mascot for its “humorous sexual connotations.”
• He owned over 200 pairs of silk pajamas.
• The centerfold in his very first issue was Marilyn Monroe. He purchased her nude photo for $500 from a Midwestern advertising trade company. The issue sold more than 50,000 copies. Although Hefner and Monroe never met, in 1992 he bought the crypt next to hers at the Westwood Village Memorial Park Cemetery for $75,000, and that’s where he is buried.
As I’m sure you all are well aware, a terrible, horrific event happened in Las Vegas last night. My thoughts and prayers are with those impacted. I told my children I loved them this morning. I strongly suggest you say the same to those you love.