Capitol Securities Market Commentary

By Kent Engelke
Chief Economic Strategist

Market Commentary

Stocks slid Friday as a downgrade of Spains debt
June 01, 2010

Stocks slid Friday as a downgrade of Spain’s debt spurred concern the European credit crisis will worsen. Financials led the downturn but energy was close behind on the President’s moratorium on new deepwater drilling permits. Tensions in the Korean peninsula were an added cause.

As widely written the Dow posted its largest monthly decline since February 2009 because of European debt concerns. Will the decline continue into June? In my view credit downgrades are the results of yesterday’s news. For reasons previously discussed, I think the markets are bottoming as I think a large part of Friday’s decline could be blamed upon the dearth of participants because of the long holiday weekend.

What I find interesting however is the apparent tectonic change about fiscal policy. Based upon casual observation it appears most major media organizations are headlining stories about a possible Greece/PIIGS style debt fiasco in the US because of Congress’s to propensity to spend. A dated Gallup/CNN poll stated the greatest fear of 67% of American is out of control spending.

I have written many times that American electorate is not a bunch of bubbas who’s only redeeming quality is drinking beer and watching reality TV shows. The silent majority has awoken and is demanding true and effective leadership, not spin and meaningless personal attacks to accomplish some ad hoc agenda.

I think most are watching and admiring the political courage of New Jersey’s governor Chris Christie. What are the odds other states/leaders will follow his lead. Yes municipal unions are angered with his approach but Americans in general are willing to withstand some hardship for a better tomorrow. It is our culture.

What will occur this week? The economic calendar is heavy. Releases include the ISM, home sales data, various private employment surveys and the BLS employment report on Friday. This data could be instrumental in determining the underlying strength of the economy.

Last night the foreign markets were down. London was down 2.13%, Paris down 2.36% and Frankfurt down 1.70%. Japan was down 0.58% and Hang Sang down 1.36%.

The Dow should open moderately lower over fears of a more pronounced Chinese slowedown. The 10-year is up 6/32 to yield 3.26%.

The information is the personal views of Kent Engelke and is not necessarily indicative of those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed here are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results.

Capitol Securities Management, Inc. is a Mid-Atlantic based, privately owned brokerage and investment firm with branch offices in Mclean and Richmond, VA, Boston MA, Hickory, NC, Florham Park, NJ and Tampa, FL. Capitol employs over 170 fulltime investment professionals and independent affiliates in locations from New England to Florida and has been serving the needs of its investors for over 25 years. It is a member of FINRA and SIPC.