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Market Commentary Have equities gone too far? Have equities gone too far? Will earnings support valuations as the S & P is now at 21 times earnings, the highest valuation since 2004? As all know profits are expected to decline for the ninth consecutive quarter, the longest streak since the 1930s, before rebounding around 60% in the fourth quarter. What about economic activity? Is third quarter growth only a proverbial flash in the pan? It appears there is a large difference in views between that of the market and that of the analyst/media community concerning economic and profit expectations. Who is correct? What are the odds the outlaying growth estimates materialize, that is the economy expanding around 4%-5% for the next three quarters? The relentless equity advance is suggesting the odds are high. Speaking of data, today Industrial Production and Capacity Utilization is released. For the month of September Industrial Production probably saw its third straight increase, rising by an estimated 0.3%. July and August Industrial Production rose by 1.0% and 0.8% respectively. Overall the September data would put overall output up about 3.5% and factory output up about 6% on an annualized basis for Q3, their first increases of any size since 2007 and the largest since 2005. However, coming from a very low base, these gains would leave Capacity Utilization just below 70%, far below its long term average of almost 81%. Yesterday’s release of the Philadelphia Fed and Empire Manufacturing offered conflicting views. The former declined greater than expected while the latter surged. Often times these regional surveys are volatile on a monthly basis therefore must be viewed in the aggregate and over a three month continuum. Viewed in this manner, both surveys suggest an accelerating manufacturing sector. Will the rally continue today? Today’s earning releases are mixed. Last night the foreign markets were down. The Dow should open moderately lower. The 10-year is up 1/32 to yield 3.45%. 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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