Strongest Industrial Production since May 2010

Last week was the worst for the S&P 500 in two-and-a-half years. For the Dow, it was its worst week in more than three years. The market may also be getting more volatile. The high for the VIX on Friday was more than twice its low from the previous Friday. Fortunately, stocks are holding on to modest gains this morning.

One hopeful sign is that Prime Minister Shinzo Abe of Japan won a big reelection victory yesterday. That ought to give him a mandate to continue with his economic reforms which have included a dramatically lower yen. The yen has dropped from 101 to the dollar in July to 121 per dollar last week. Japan hasn’t had much good economic news in a long time.

On a related note, the amazing drop in oil continues. On Friday, West Texas Intermediate got as low as $57.34 per barrel. That’s the lowest price since May 2009. For some context, in the summer of 2008, oil was going for more than $140 per barrel.

The big econ report this morning showed that Industrial Production rose by 1.3% last month. That’s the biggest jump since May 2010 (see below). The report also showed the biggest gain in consumer production in 16 years. The theme is the same—the U.S. economy is improving, but very slowly.

The Federal Reserve meets on Tuesday and Wednesday of this week. This meeting will be followed by a Yellen presser plus updates on the Fed’s projections (better known as the blue dots). I actually think this meeting won’t be so important. We know rates are going higher, but we don’t know when.

There might be some nervousness this morning as the terrible hostage drama plays out in Australia. I also noticed that PetSmart ($PETM) is up this morning on the news that it’s being bought out for $83 per share. That’s 16.7 times estimated earnings for next fiscal year (ending in January 2016). I’ve often kept an eye on PETM and considered it for previous Buy Lists. I am a little surprised by how low the premium is. It’s less than 7% above Friday’s close.

Oracle ($ORCL) is up strongly this morning thanks to an upgrade at Morgan Stanley. Although it’s odd to upgrade a stock that’s going to report earnings on Wednesday.

Posted by on December 15th, 2014 at 10:01 am


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