Capitol Securities Market Commentary

By Kent Engelke
Chief Economic Strategist

Market Commentary

Stocks rocked as growth in New York
June 16, 2010

Stocks rocked as growth in New York manufacturing added to signs the global economy is weathering Europe’s debt crisis. As written many times it is not change that frightens me but rather the velocity of change. In a six week period we have moved from expansion, to recession to recovery and back to expansion.

In my view the major negative news items are now behind us. All know about Greece and the shape of the Mediterranean countries. All know about the BP oil spill and the financial bill making its way through congress. New negative news could be an unexpected downgrade of Portugal/ Spain or China slowing at an unanticipated rate. Other potential negative news is earning pre warnings.

What are the odds that any of the above can occur? As noted several times all are hyper sensitive to any possible negative event given the scars of fall 2008/winter 2009 are so shallow. This hyper sensitivity is amplified by incredible volatility; volatility in my view is the result of algorithmic trading.

So much attention is now focused upon various “support levels” that technical trading has become a self filling prophecy especially as it appears so much money is now chasing this trading strategy.

However it is my general observation once “all” adopts a philosophy, influence wanes.

As noted yesterday I believe economic activity is the ultimate driver of equity and debt valuations. Everything else is noise. As written above, the primary catalyst for yesterday’s rally was the Empire Manufacturing survey. Is this a harbinger of things to come?

If economic activity is stronger than most expect, the odds increase earnings will continue to surprise on the upside hence lowering the possibility of potential earning pre warnings.

Speaking of data, the PPI, housing starts/permits, and capacity utilization/industrial production are all released today. How will this data influence trading?

Last night the foreign markets were mixed. London was up 0.04%, Paris down 0.09% and Frankfurt down 0.07%. Japan was up 1.81% and Hang Sang up 0.05%.

The Dow should open moderately lower on economic and earning concerns. The 10-year is up 12/32 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.