Daily Commentary

MarketMinder’s View: This article is ostensibly about employment in the oil and gas production industry—with a focus on US fracking jobs. But our interest here is more in how producers are doing more with less to boost output while cutting the number of rigs actively drilling for oil. “Two decades into the shale boom, companies are drilling wells that extend deeper into the earth, unlocking more oil and natural gas. New technology is letting them oversee drilling, fracking and production from afar, with fewer people on-site. And larger companies are snapping up smaller players, shedding accountants, engineers and other workers as they go. … By late 2024, the number of drilling rigs operating in the United States had fallen roughly 28 percent in five years, federal data show. And still production climbed. ‘We get three times as many wells from a rig today that we did in 2018 or 2019,’ Bart Cahir, who leads Exxon’s shale division, said in an interview last year. ‘Per person, we’re producing a lot more.’” This also means the old relationship between rig count and production may not hold as it once did (trends in the former led the latter by roughly 18 months). This is a worthy consideration for investors, since oil supply relative to demand sets prices, which are a huge influence on oil firms’ profitability.

MarketMinder’s View: This gauge—the National Federation of Independent Business’s Small Business Optimism Index—tends to skew pretty hard on partisan lines in favor of Republicans and the coverage here is infected with partisanship, too. While we favor no party nor any politician, we do think biases around each party’s perceived economic impact can affect broad investor sentiment. In this case, as the coverage shows, the index “… jumped 3.4 points to 105.1 in December, the highest reading since October 2018.” “This is the second consecutive reading above the 50-year average, after the November index broke a 2.5-year streak that same month as Trump's win. At the same time, the NFIB's Uncertainty Index plunged 12 points last month, falling to 86.” There are other signs of ebullience in these data, which mirror results in the University of Michigan’s consumer sentiment survey and The Conference Board’s Consumer Confidence Index. It suggests Republican investors, who we think are the majority in the US, are quite optimistic with the new administration taking office—and expectations of what the government will do are elevated. That may tee up disappointment if they can’t meet or exceed those hopes.

MarketMinder’s View: For all the talk about sticky inflation freezing the Fed’s cut cycle and risking future rate rises and so on, the data continue to show you the war on hot price rises is over. In this case, the US Producer Price Index (PPI) rose 3.5% y/y in December, matching October’s rate. But more importantly, on a month-over-month basis (which mitigates base-effect skew) prices rose 0.2%, half the forecast 0.4%. And the core PPI was unchanged month-over-month. Furthermore, the services components in this gauge that feed into the Fed’s targeted personal consumption expenditures price index were mixed and showed little sign of heat. That gauge is running at 2.4% y/y as of November, per St. Louis Fed data, which is only 0.4 percentage point above the target. There is no real sign anything the Fed can do would be precise enough to fine-tune it to target. And, as for the Trump chatter here, tariffs don’t impact the money supply. Inflation is too much money chasing too few goods. Tariffs are taxes that may redirect demand, but they don’t increase money in circulation.