The BLS employment report is released today at 8:30.  As noted many times, may bulge bracket firms are almost equivocally stating that volatility will increase and the averages may decline anywhere from 5% to 20%.

While I do agree with the former, I question the latter.

Regarding volatility, according to LPL, in the 17 trading days through last Thursday, the S & P 500 moved less than 0.75% between its daily high and low.  This is the most consecutive days with such narrow trading range in records that go back to 1970.  This streak was broken last Friday.

The second longest streak with such narrow moves was the 16 days from July 11 through August 1 of this year.

And then there is volume.  As noted the other day, Monday had the fewest shares traded since December 31, 2015, which was also about 38% of the volume on June 24, the highest volume trading day of the year according to the WSJ.

The WSJ also reports August was the fourth narrowest August trading range since at least 1928.  The other years were 1958, 1964 and 1965.

There are few certainties in life but one of these certainties is the reversion to the mean, thus suggesting volatility increase.

Regarding volume or trading activity, as noted many times according to the NSYE 89% of trading on that exchange is the result of algorithmic or technology based trading that requires volatility.  Simplistically speaking, no volatility no trading activity.

I cynically ask has technology really increased liquidity as many pundits suggest?

Can a case be made that most people have exited the markets?  I think yes given the dearth of activity and the fourth calmest market in history.

Today is different than yesterday for the simplistic reason the trading mechanics have drastically changed.  Fifteen years ago there were hundreds of “specialists,” specialists that have now been replaced by approximately nine electronic trading venues, venues that will act only if a variable suggests it should act.  I think this is a dangerous environment.

Will the markets decline by 5% to 20%.  I can make a strong bearish case but what are the odds the current environment continues?  I, as well as almost everyone else, never thought interest rates would remain at current levels for this long thus suggesting anything is possible.

As noted above, the jobs data is released at 8:30.  Some believe this release can be the catalyst for greater volatility.

Consensus is expecting a 4.8% unemployment rate, a 180k increase in both private sector and non-farm payrolls, a 0.2% increase in average hourly earnings, a 34.5 hour work week and a 62.8% labor participation rate.

Last night foreign markets were up.  London was up 0.94%, Paris up 0.90% and Frankfurt up 0.27%.  China was up 0.13%, Japan down 0.01% and Hang Sang up 0.45%.

The Dow should open flat but this could change radically with the various interpretations of the 8:30 data.  The 10-year is off 4/32 to yield 1.58%.


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.