Equities rose on signs the Trump Administration is working toward easing tensions with trade partners.  The President indicated that he would postpone European auto tariffs by up to six months.  Treasury Secretary Mnuchin also said American officials were close to a deal with Mexico and Canada on removing metals tariffs.

The above helped alieve anxiety of unexpected weak economic data from China.  Speaking of China, it’s widely reported China exported $559 billion to the US which is about 4.6% of their economy.  Last year we exported $180 billion in goods and services to China, which is 09% of our GDP.

China is an asset based, export dominated economy, an economy which by definition is weaker than an income based non export dominated economy.  In other words the risks are greater and the flexibility is less in China than the US.

A major issue at hand is Chinese exports are concentrated in the technology sector, a sector that has dominated the equity averages.

Speaking of domination or perhaps the loss of domination, the father of factor /quantitative investing used descriptive words such as “crappy” and “terrible” to describe performance.  Factor/quantitative investing was regarded as the panacea of investing strategies where losses could be minimalized and gains outsized.

It worked until it did not, the result of everyone emulating the strategies entailed.

As noted many times, indexing is the only strategy that has consistently worked.  The issue at hand is that indexing is perhaps the most crowded trade that has ever occurred in known eternity.

It is widely known axiom that once everyone does something, that trade underperforms by the same magnitude that it had over performed.

Is this the basis for Vanguard’s warning—the firm that popularized indexing– that the averages may mark time at best for the next 10-years?  I think the odds favor yes.

Last night the foreign markets were up.  London was up 0.27%, Paris up 0.35% and Frankfurt up 0.73%.  China was up 0.58%,  Japan down 0.59% and Hang Sang up 0.02%.

The Dow should open nervously higher.   The 10-year is off 3/32 to yield 2.39%.


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.