Equities and the Economy

Good morning. Friday was a very mixed day for U.S. equities. The Dow ended the week on a positive note closing up 113 points, 0.7%, at 16,215, the S&P 500 closed just about unchanged, down 1 point, and the Nasdaq got hammered falling 1.03%, 48 points, ending at 4,686. The Dow was aided tremendously from Nike which posted a 9% gain after releasing a great earnings report. Apparently, the Chinese love everything Nike and are buying the heck out of the “swoosh.” It was the biotechnology stocks once again that severely pulled the Nasdaq lower. The IBB, which is the Nasdaq Biotechnology ETF, has its worst day last Monday since April 2014 after a tweet by Hillary Clinton about price gouging and continued falling closing on Friday below its “flash crash” low of August 24. The IBB is down more than 20% from its 52 week high. Now in full disclosure, the IBB was in bubble territory being up 100% over the past two years and this correction is way overdue. That’s what happens with high flier and momentum stocks. For the week the Dow closed down 0.4%, the S&P booked a 1.4% loss and the Nasdaq took a beating losing 2.9%. Relative to the 52 weeks high, the Dow and Nasdaq are down 10%, the S&P is off 9.5%.

Man have times changed. High frequency trading accounted for 49% of September’s daily trading volume of about 7.2 million shares. It was too long ago when the term “high frequency trading” didn’t even exist.

Fundamentally, on Friday Q2 2015 GDP was revised substantially higher to 3.9% boosted by stronger spending and construction. On the other side of the coin, consumer sentiment was reported to have fallen for the third straight month in September to 87.2, the lowest in nearly a year.

This morning the Dow is down 165 points which a few years ago would have been a big deal but in today’s environment that can be easily recouped intraday. The Asian markets closed mixed while the European markets are under serious pressure all being down 1.82% to 2.88% which is why the Dow is lower.

Oil

Oil prices on Friday posted marginal gains with WTI closing up 79¢ at $45.70 and Brent gaining 43¢ at $48.60. After falling to a 6 year low late last month at $37.75 WTI has rebounded and now spend nearly a month pivoting within a couple of dollars of the $45.00 mark. Brent prices rose last week by 2.4% marking the first weekly advance in 4 weeks. Baker Hughes released its weekly rig count report on Friday afternoon noting a decline of 4 rigs for the week with a total of 838 rigs working, which is down by over 1,000 rigs since October 2014. U.S. oil and gas production has been very resilient in the face of the drop in rig count, but I’m telling you going forward production is not going to rise, and will probably fall. This morning WTI is feeling the weight of lower global equities being down $0.47.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices slipped Friday closing down 2.7¢ at $2.564. Interestingly, the 2016 calendar strip fell 3.6¢. I always focus on the calendar strips because most clients are buying natural gas and electricity on a multi-year basis. This morning natty is popping being up 4.28¢ with cash buyers surfacing and shorts covering for today the October Nymex contract expires. The front month contract, October, is now up more than a dime from the lows we saw last week. The weather forecast this morning has turned materially cooler albeit only back to normal from above normal for the 6-15 day period which means that natty demand will be boosted marginally with more HDD’s for the term. This is also supporting natty prices.

I’ve mentioned that a few forecasters are predicting a warmer than normal winter for the upper Midwest, northeast and Canada due to the El Nino. Well at least one forecaster is not buying the El Nino story, the Farmer’s Almanac. They are predicting a cooler than normal winter for the eastern third of the country with a very frigid upper Midwest, MidAtlantic and New England.

Elsewhere

In the early part of 1850 a young man stepped off the gang plank in San Francisco harbor with all the vigor and enthusiasm of making his fortune finding gold in the hills of Northern California. In his luggage were items not usually selected for a gold mining venture because that is all his ticket would allow. Amongst his possessions was a small stock of heavy canvas. This was to be his grubstake. He figured the canvas would bring a fancy price and he would be able to obtain enough cash to fund his mining venture. The man had hardly been ashore a few hours before a passing a miner asking him what he had in his bundle. Upon hearing his explanation, the miner disgustedly shook his head and said what he should have brought were men’s pants complaining the only ones available in the gold fields would not hold up under the hard labors of the mine. Seeing an opportunity, the young traveler took his new friend to the nearest tailor and told the tailor to make a pair of pants for the miner from his stock canvas. The miner was elated with the tough fabric and proudly displayed them among his friends in San Francisco. As months passed the young man became so busy furnishing material for miner’s pants that he never made it to the gold fields. Everyone wanted a pair of the pants that tailors were making from his canvas. And that is how Levi Struss came to California and mined miners instead of the mines.

Have a good day.