A midafternoon sell program perhaps tied to the Beige Book which indicated potential margin compression sent the NASDAQ down about 1.0%.  Oil advanced about 5% on diminishing inventories. Treasuries sold off nominally.

Perhaps the five most operative words in the above paragraph is “sell programs” and “potential margin compression.”

The Beige Book, or the statistical compilation utilized at the upcoming FOMC meeting, characterized the economic expansion as “moderate” which is causing supply chain disruptions, rising wages partially the result of the inability to attract and retain qualified applicants, and input inflation is outstripping selling pricing are “all of which of the above suggests margin contraction.”

Valuations are near or at record levels and margin compression has the potential to greatly increase volatility.

As noted many times, according to the SEC 90% of volume is the result of algorithmic trading.  Goldman has consistently stated liquidity is “anemic.”    Bloomberg states the selloff commenced around the same time of a modest sale 18,000 E mini S & P that sent the shares sharply lower which incidentally occurred around the same time the Beige Book was released.

For many reasons, many bulge bracket firms are suggesting the markets can decline 5% to 20%.  If the reasons for yesterday’s modest reversal in the NASDAQ are indeed accurate, perhaps this selloff will occur quickly for reasons not experienced in a generation.

What will happen today?

Last night the foreign markets were mixed.   London was up 0.33%, Paris up 0.27% and Frankfurt up 0.27%.  China was down 0.52%, Japan up 0.07% and Hang Seng down 0.37%.

The Dow should open nominally higher on solid mega sized financial firms’ earnings and nominal decline in Treasury yields.  Retail sales and jobless claims are released at 8:30. Later in the morning several manufacturing statistics are released as is a housing survey.  The 10-year is up 6/32 to yield 1.62%.


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.