Equities were mixed Friday on contrasting statistics from China on how the coronavirus is spreading.  Data was generally upbeat however some are concerned that retail sales were revised nominally lower in December.  January’s retail sales rose for the fourth consecutive month, meeting expectations albeit the rate of growth slowed.  Consumer sentiment hit its highest since 2018.

Oil continued its rebound, staging the greatest weekly advance since September.  Earlier in the week oil traded to the lowest level in a year.  Bloomberg writes the intense volatility is the result of commodity trading advisers (CTAs) as prices fell to below buying points for high frequency, systemic traders.

Some are attributing the 6% weekly gain in oil as the result of Chinese refineries unexpectedly buying cheapened crude perhaps suggesting demand is still robust despite the coronavirus.

As widely discussed and accepted, the markets are entirely dominated by technology-based trading, where momentum and capitalization are the primary determinates of a sector/company direction.

Speaking of which, Bloomberg writes that 28.6% of recent gains in the markets are the result of FAANG and Microsoft, down from 56.4% in January.  Bloomberg also writes the last time the advance was this myopic was in early 2000.

In both eras everyone sold the value shares to buy/chase growth.  Historically such activity is associated with a major top.

Today there is not a shortage of warnings however all feel empty given recent history.

Speaking rhetorically, the Fed is reducing its intervention into the repo market earlier than expected.  Moreover, the amount it intends to intervene is also lower than the consensus view.

Many including me believe these interventions are/were pivotal for the outsized gains in the largest capitalized technology issues for a considerable period of time.  I will argue this supposition would prove to be correct if the market and these issues stumble as liquidity is withdrawn.

Historically—defined as the last five years—every time the Fed threatened to withdraw or did withdraw monies from the market, equities stumbled.  Will today be different?

We will find out shortly.

What will occur this week?

The economic calendar is comprised of various housing statistics, inflation data, several manufacturing indices and the Minutes from the recent Fed meeting.

Last night the foreign markets were down.  London was down 0.92%, Paris down 0.48%  and Frankfurt down 0.74%.  China was up 1.12%,  Japan down 1.40%  and Hang Sang down 1.54%.

The Dow should open moderately lower following Apple’s warnings that sales would miss forecasts, blaming the coronavirus for the shortfall.  The 10-year is up 12/32 to yield 1.55%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed 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. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.