Stocks once again opened the day higher but then fell for no apparent reason. At the close the Dow was off 205 to 25,081. Trading volume was higher. Shares of Apple were the main cause of the decline as the guru’s express concern that demand for the iPhone might soften. While the markets are trading lower underlying US earnings and economic fundamentals are good. This divergence between market levels and underlying fundamentals was last seen in 2011 when the Greeks almost threw “ace duce” in the debt crisis and caused turmoil in Europe. Today's conditions could be a replay of that era.
Prices of natural gas have suddenly shot higher and crested the $4 price level for the first time since 2014. While the US is now the largest natural gas producer in the world, natural gas stockpiles are about 16% below historic averages after a warm October led to more electricity demand for air conditioning. Then to make matters worse a cold snap has begun and is expected to last longer than originally thought putting additional demand on natural gas for heating. The change in the weather forecast caused traders to suddenly switch positions and go long driving up prices in a frenzy of trading. Nat gas hit $4.60 per mbtu up 12% today.
Some of our stock market weakness is related to fears of slowing world economic growth. It was reported today that Germany, the 4th largest economy in the world posted a Q3 0.2% decline in its economy due to a slowdown in its auto space. Germany is very dependent on exports and with China’s economy facing a slowdown, this is starting to affect Germany and thus the entire European Union. One item I wondered about that was not reported however was the possible effect that Tesla might be having on Germany. With Tesla now outselling Mercedes and other German car companies and with the auto industry accounting for 1 in every 7 jobs in Germany, could their slowdown in part be associated with the recent success of Tesla? Only time will tell but it looks like Tesla is about to do to the German car companies what they did to US car companies back in the late 1960’s and 1970’s when the Volkswagen Beetle shook up Ford and GM.