CONFLICTING MESSAGES

The bond market is suggesting the economy will slow considerably.  Consumer confidence however rose more than expected to the highest level since November as Americans felt the best about current economic conditions in 18 years.

In my view the most compelling aspect of the consumer confidence report was the gap between “jobs are plentiful” and” jobs are difficult” to get.  This gap is now at the highest since 2000.  Job security is a dominant element in any economic outlook.

What indicator is correct?  Rarely is there such a massive disconnect between two indicators.

Historically the bond market is the more accurate indicator but recently its predicative qualities have declined considerably.  I would argue this decline is the unintended consequence of massive central bank intervention that has skewed the traditional dynamics.

Change is the only constant.  It is the velocity of change however that is frightening.  Will the inflationary outlook change overnight causing a surge in yields or will consumer sentiment radically change, the result of some extreme externality?

Some would opine a disconnect does not last long in today’s efficient market.  I beg to differ.  From firsthand experience, an environment or disconnect can last a lot longer than anyone can rationally expect.

Commenting about yesterday’s market action, equities fell and treasuries rose again on trade and economic fears.  Equity volume was anemic but 10 of the 11 S & P 500 sectors did decline.

What will happen today?

Last night the foreign markets were down.   London was down 1.28%, Paris down 1.69% and Frankfurt down 1.29%.  China was up 0.16%, Japan down 1.21%  and Hang Sang down 0.57%.

The Dow should open moderately lower on growth fears, fears stoked by the growing and impending trade war. The 10-year is up 11/32 to yield 2.23%.

kent
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.