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  I will argue this supposition would prove to be correct if the market and these issues stumble as liquidity is withdrawn.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. 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 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. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.