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Market Commentary Equities were disappointed with the FRB Chairmans congressional testimony. Equities were disappointed with the FRB Chairman’s congressional testimony. There was no mention of eliminating interest credited to excess bank reserves; the rumor of such was the catalyst for Tuesday’s 225 point reversal. Moreover stocks focused upon Bernanke’s “unusually uncertain” remark to describe the economic environment. The Fed chief further stated the Central Bank “remains prepared” to act as needed to aid growth even as they get ready to eventually raise interest rates from zero and shrink a record balance sheet. In my view nothing new was added hence the moderate equity sell off and the two year treasury falling yet to another record low yield for the fourth day in five. The Fed Chief perhaps increased economic uncertainty without offering any additional measures to stimulate growth. As noted many times second quarter earnings have been strong as 83% of those released have exceeded expectations. Because of this strong profit growth cash has been accumulating at a record pace now representing over 11% of total assets. Some are beginning to ask when this cash will be utilized in a more productive manner? Will all look back two years from now and ask why we did not consider the possible ramifications of huge cash balances? Cash is around $1.9 trillion which is equivalent to 14.6% of GDP which a case can be made that this too is a record as compared to GDP. In my view it is not manner of if but when some of this hoard will be spent. What will occur today? Existing home sales, the Index of Leading Economic Indicators and weekly jobless claims are released. Claims during the past three weeks were lower than the consensus view. Last week’s claims were the lowest in over a year. Will the trend continue? Last night the foreign markets were up. London was up 1.0%, Paris up 1.72% and Frankfurt up 1.63%. Japan was down 0.62% and Hang Sang up 0.50%. The Dow should open sharply higher on earning reports and accelerating European manufacturing growth. The 10-year is off 8/32 to yield 2.91%. 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. © Copyright 2008 Capitol Securities, Inc. All Rights Reserved. |
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