Perhaps I should have titled today’s remarks that the markets have never really deviated from normalcy. I have written many times that I believe interest rates are the largest component of valuation (and technology based trading) formulas. Markets today are only reacting in greater fortitude if interest rate assumptions are challenged.

Yesterday the averages came under pressure because of the opaqueness of the Fed’s statement stating the next move on interest rates can either be up or down. The dovish narrative was perhaps shattered.

Speaking of shattered, a major reason why many market participants are demoralized is the constant blow up of marquee names or trading strategies. The only strategy that appears to be working is indexing; a strategy in itself is perhaps the most overcrowded and concentrated trade in history.

Bloomberg wrote yesterday a total of 68 companies in the S & P 500, many of which are household names, have suffered 2019 losses greater than 10% in one day. Most of the blame falls on disappointing earnings where selling is occurring into the abyss, the result of company stabilizing mechanisms, mechanisms that have been shattered in today’s environment where cost and speed of execution is the only determinate. Approximately 90% of trading is the result of algorithmic trading or passive/indexing investing. The human element is virtually absent.

The major issue at hand is what happens if the monetary policy again changes and interest rates revert back to historic norms based upon prevailing economic conditions? In December all received a possible taste of what could occur if such does occur.

Today is the release of April’s unemployment data. To write the obvious, there could be an outsized reaction if the data differs greatly from the consensus view. Wages and the labor participation rate could feature prominently.

Last night the foreign markets were up. London was up 0.79%, Paris up 0.20% and Frankfurt up 0.30%. China was up 0.68%, Japan down 0.22% and Hang Sang up 0.46%.

The Dow should open moderately higher on earnings, trade and economic optimism but sentiment could radically change if the data differs considerably from the consensus view. The 10-year is off 4/32 to yield 2.56%.

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.