Weekly Indicators for December 26 - 30 at XE.com

 - by New Deal democrat

My Weekly Indicators post is Up at XE.com.

Interest came down off recent highs to end the year.

See you again in 2017!

Marking my 2016 forecast to market

(Plus a pyrrhic political presidential prediction)

 - by New Deal democrat

How did my economic forecast for2016, made one year ago, pan out?  The result is Up at XE.com.

While it wasn't an economic forecast, I did use economic data to make a forecast the 2016 presidential election, that the candidate of the incumbent party would eke out a narrow victory.

Just before the election, my final personal forecast was

Clinton 49.5%
Trump 46.0%
Third parties 4.5%

According to the Cook Political Report, the final result was

Clinton 48.2%
Trump 46.1%
Third parties 5.7%

So my prediction was pretty darn close, but of no use whatsoever because of the state by state distribution of that result.

Will the Energy Sector Outperform in 2017?

From the Dallas Fed:

Business activity continued to increase in the fourth quarter, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—rose to 40.1 from last quarter’s 26.7 reading. Several indicators expanded on a quarterly basis for the first time in 2016, including employment and production. Outlooks also improved, despite some skepticism about recent oil producer agreements, which respondents commented on in this quarter’s special questions.

Oil and gas production stopped declining this quarter after falling throughout the year, according to executives at exploration and production (E&P) firms. The oil production index surged nearly 20 points to 9.0, and the natural gas production index was 3.1, up from -20.6 last quarter.

Among oilfield services firms, the equipment utilization index rose again, posting at 35.9. The index of prices received for services jumped from -23.4 to 6.8, its first positive reading in 2016.

Measures of oil and gas labor market conditions turned positive for the first time all year, although the majority of respondents continued to report unchanged headcounts. The employment index came in at 3.4, with 18 percent of firms noting net hiring and 15 percent noting net layoffs. Indexes of wages and benefits and of employee hours also turned positive at 10.3 and 13.7, respectively

From ETF.com

With improved oil prices, banks are more willing to extend credit lines to leveraged hydraulic fracturing or fracking companies that are looking to boost market share for the first time in two years, reports Swetha Gopinath for Reuters.

Raymond James calculated that North America-focused oil and gas producers could raise capital investment by 30% in 2017. A number of companies, like Pioneer Natural Resources (NYSE: PXD), Diamondback Energy (NasdaqGS: FANG) and RSP Permian (NYSE: RSPP), have projected larger budgets and increased output next year.

Through the latest calculation in the value of reserves in the ground with bank creditors, 34 oil and gas producers had their available credit lines raised an average of 5%, or over $1.3 billion, with a combined credit for the companies at $30.3 billion, compared to $28.9 billion at the end of spring 2016.

“The ‘animal spirits,’ seem to be coming back to the exploration and production market, albeit slowly,” Reorg Research analyst Kyle Owusu, referring to the human emotion that drives confidence, told Reuters.

Consequently, with more robust credit lines, fracking companies are set to expand operations and increase capital spending. Consequently, the oil services industry that caters toward these producers could also reap the benefits as well.

But see this from the Street.com

The energy sector has been the best performing S&P 500 sector so far in 2016, rising 24.3%, but investors should proceed with caution in 2017. Keith Bliss, senior vice president with Cuttone & Co., said the 2016 growth comes amid a stabilization in oil prices after the sector was slammed in 2015. According to Bliss, oil companies must get used to $50 to $60 oil. Plus, should OPEC fail to adhere to its proposed production cuts, which take effect in January, that may ding energy stocks, which are banking on higher oil prices, according to Bliss. 

The XLE has a bit more upside room to run.  While the RSI is high, this indicator can remain at overvalued levels for long periods of time.  The MACD has some upside room.  

Year end look at housing 2016

 - by New Deal democrat

I have the latest updated look at this leading economic sector Up at XE.com.

Potential Risks to the U.S. Economy in 2017

This is up at XE.com

Is A Housing Slowdown Coming?

From Reuters:

Contracts to buy previously owned U.S. homes fell in November to their lowest level in nearly a year, a sign rising interest rates could be weighing on the housing market, the National Association of Realtors said on Wednesday.

The group said its pending home sales index, based on contracts signed in November, dropped 2.5 percent to 107.3.

"The brisk upswing in mortgage rates and not enough inventory dispirited some would-be buyers," the NAR said in a statement accompanying the figures.

Consider that above with the following interest rate information:

Since the election, 15 and 30-year mortgage rates have increased over 50 basis points.  That means that means the  XHBs may be a possible short:

Post-Election Consumer and Business Confidence Increase

The following is from the Conference Board:

Consumers’ assessment of current conditions declined in December. Those saying business conditions are “good” decreased slightly from 29.7 percent to 29.2 percent, while those saying business conditions are “bad” increased from 15.2 percent to 17.3 percent. Consumers’ appraisal of the labor market was less positive than last month. Those stating jobs are “plentiful” declined from 27.8 percent to 26.9 percent, while those claiming jobs are “hard to get” increased from 21.2 percent to 22.5 percent.

Consumers’ short-term outlook improved considerably in December. Those expecting business conditions to improve over the next six months increased from 16.4 percent to 23.6 percent, while those expecting business conditions to worsen declined from 9.

9 percent to 8.7 percent.

Consumers’ outlook for the labor market also improved markedly. The proportion expecting more jobs in the months ahead increased from 16.1 to 21.0 percent. However, those anticipating fewer jobs also increased, from 13.5 percent to 14.0 percent. The percentage of consumers expecting their incomes to increase rose from 17.4 percent to 21.0 percent, while the proportion expecting a decrease fell moderately, from 9.2 percent to 8.6 percent.

The following chart and commentary is from the National Federation of Independent Business:

The Index of Small Business Optimism rose 3.5 points to 98.4, a substantial gain to just above the 42-year average of 98. Eight of the 10 Index components posted a gain, one declined and one was unchanged.  Expectations for real sales gains and outlook for business conditions accounted for 69 percent of the gain. The two employment components added 20 percent of the gain. The remaining six components were little changed. 

Analysis: For the consumer, this will probably lead to increased retail sales and personal consumption expenditures -- a confident consumer is more likely to increase expenditures.  This could lead to upside surprises in holiday sales and could also translate into an increase in auto and light truck purchases (these types of expenditures require financing which consumers don't take out unless they believe they can afford the payments over an extended time horizon).  

As for business, an increase in confidence naturally leads to increased risk-taking.  I still think business will be a bit conservative; they may need to see more action from Congressional Republicans before making major changes.  I think the real issue here will be tax reform, especially a lowering of corporate and personal tax rates.