Value led yesterday’s decline perhaps the result of a disappointing ISM non-manufacturing report. The service sector is not expanding as strong as expected, primarily the result of a dearth of workers. The order backlog was the highest in the group’s data going back to 1997.

Prices paid surged by the greatest amount in history going back to 1979.  The prices paid sub index is now above 80 for a record sixth month and all 18 industries are reporting “strong pricing pressures and record long lead times.”

One would have expected Treasuries to decline but advance instead focusing on the disappointing reading, a reading that is consistent with 6% GDP growth. Long dated Treasuries advanced about a point.

Oil was surging earlier in the day to the highest levels since 2014, the result of the disarray in OPEC and narrative similar to that of the 1970s, but reversed direction ending lower under the guise rapidly rising prices could hamper growth.

Markets were also spooked by the Chinese crackdown on technology companies. Selling was not robust for American technology companies perhaps under the simple premise that the perceived slowing of growth—the result of a disappointing ISM reading—will not impact tech.

All could list a myriad of examples as to when the markets decoupled from reality. In my view yesterday is one that could be remembered for some time. The response to the data was exact opposite as what was to be expected with the markets blindly adopting the transitory narrative. In my view the complacency is incredible.

Changing topics, flows into thematic exchange trade funds jumped nearly five-fold over the first half of 2021 relative to last year. The nearly fivefold increase in thematic ETFs is fueled by the retail investor according to both Bloomberg and Dow Jones. An issue at hand is economic viability as per both newswires.

Speaking of economic viability, the SEC filings for Robinhood suggest it is primarily a retail options and crypto currency trading firm. Its S-1 indicated approximately 38% of revenue is the result of payment for its retail options order flow 17% was for order flow for cryptocurrency which Dogecoin is 34% of this amount. Dogecoin is a fictitious crypto.

To write it differently 55% of its revenue is from overt speculation as retail option trading is not regarded as a long-term business model. And then there is crypto.

Payment for stock trades is about 26% of its revenue.

Payment for order flow is about 81% of Robinhood’s revenue which many believe, including regulatory officials, would permit Virtu and Citadel to front run ideas or charge gargantuan premiums on out of the money illiquid options.

Before last week’s $70 million record FINRA fine, Robinhood paid another $60 million fine for failure to disclose its order flow.

Today the Minutes from the recent Fed meeting are released. Will such impact the markets?

Last night the foreign markets were mixed. London was up 0.50%, Paris up 0.03% and Frankfurt up 0.85%. China was up 0.66%, Japan down 0.96% and Hang Seng down 0.40%.

The Dow should open flat. The 10-year is up 1/32 to yield 1.35%. Oil is up about 2%.


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.