Equities and the Economy:

• Equities rally to again set record highs.
• Fundamentals continue to be supportive.

Four main stock benchmarks set new record highs yesterday. The Dow popped 153 points, 0.7%, finishing at 22,558, the S&P 500 advanced 10 points, 0.4%, ending at 2,529, the Nasdaq tacked on 21 points, 0.3%, to 6,517 and the Russell 2000 carved out a 1.3% gain to 1,509. The latter index has been on a tear since President Trump released his tax cut proposal which as presented is expected to benefit small companies the most.

Both cheap money and fundamentals continue to drive this market. Regarding the former, although the Fed has raised interest rates a couple of times, rates remain at historic lows. Additionally, there’s still a tremendous amount of capital circulating out there that needs to be put to work resulting from the Fed’s multi-year bond buying program. Regarding the latter, data after data continues to show the economy is on solid footing. Yesterday the ISM manufacturing index was released coming in at 60.8. This is the highest level since 2004. A reading of above 50 indicates expansion. Construction spending per the Commerce Department rose 0.5% in August and is up 2.5% y-o-y. There was a blemish in the report which was that July’s construction spending was revised down a material -0.6% to -1.2%. Maybe the biggest factor in the market is that we’ve been in a bull trend for years now and every time someone has gone bearish they’ve gotten run over. Take it from a trader, one of the most powerful forces in the market is “the trend is your friend.”

This morning is beginning well. The Dow is up 32. Folks, there’s no question this market is overextended to the upside, but we’re in a bull market and one has to play it that way. It will come to an end when it does, and most likely without warning, very possibly by a black swan event.

Oil

• Report shows OPEC production increased in August.
• Price gets whacked.

A Reuters survey on Friday revealed that OPEC production rose by 50,000 bpd in September and a separate report noted the cartel’s compliance fell 3% to 86%. Add in Baker Hughes report on Friday the U.S. oil rig count increased 6 last week and you got the makings of fundamental bearishness. The Baker Hughes data brought concern to traders that the latest bull run in prices could bring another wave of U.S. production to the market. With all the negative news the bears were in control yesterday. WTI fell a big $1.09, 2.19%, closing at $50.58 while Brent lost less, 67¢, settling at $56.12.

Regarding OPEC compliance, a couple of countries are doing the “heavy lifting.” The aforementioned compliance report showed Saudi Arabia and Angola bearing the brunt of the cuts while countries such as United Arab Emirates, Ecuador and Iraq complied at the 30% level. Adding fuel to the proverbial fire, the U.S. dollar surged 0.5% yesterday. All other things being equal, a stronger U.S. dollar is bearish of commodities priced in the greenback.

This morning the pressure is still on. WTI is down 27¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Cash market weak.
• Front month price gets hammered.

Yesterday marked the first business day of the month and buyers of day gas, i.e., cash gas, were few and far between forcing selling to take what market they could find to keep their gas moving. The weak gas prices weighed on the November Nymex contract pushing it a big 9.1¢ lower to $2.916. Adding to the bearish scenario was that U.S. production is close to record levels. It’s not total Armageddon for the bulls though. LNG exports are at a record level as well as exports to Mexico. And don’t forget, the lower the price goes, the more gas get consumed in electric generation. Electric generation is “the great balancer.” Of note, yesterday all the action was in the front few months because the calendar 2018 strip fell only 2.8¢ and the calendar 2019 and beyond ended virtually unchanged.

This morning we’re down slightly, 1.7¢.

Elsewhere

The amazing musician Tom Petty died yesterday at the age of 66 of a full cardiac arrest. I venture to say there’s not one person reading this that has not heard of him. He is one of the best-selling music artists of all time. Tom Petty and the Heartbreakers debuted their first self-titled record in 1976 and continued to perform over the past four decades. His hits include “American Girl,” “Stop Draggin’ My Heart Around,” Breakdown” and the megahit “Freefallin’.” The rocker is so famous he has his own channel on SiriusXM.

Petty was born in Gainesville, Florida. His interest in rock and roll began at the age of 10 when he met Elvis Presley. His uncle was working on the set of a Presley film and invited him to watch the shoot. However, it was when he saw the Beatles on The Ed Sullivan Show that got him to want to play music and start a garage band. One of his first guitar teachers, who also lived in Gainesville, was Don Felder. That name ring a bell? Can you say Eagles?! Tom Petty began like so many musicians just trying to put bread on the table and took many jobs, including a short stint as a grave digger.

Tom Petty’s awards include:

• Tom Petty and the Heartbreakers received a star on the Hollywood Walk of Fame in 1999.

• In 2002, Tom Petty and the Heartbreakers were inducted into the Rock and Roll Hall of Fame.

• On December 6, 2005, Petty received Billboard Century Award for his lifetime achievements.

• Also in 2006 Tom Petty and the Heartbreakers received the keys to city of Gainesville, Florida.

And oh, then there’s those 80 million records sold worldwide!