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Recent FED Minutes A Non-Event

According to Bloomberg over $6 trillion in market capitalization has been added the S & P 500 in 2023, an advance primarily focused in MSFT, NVDA, META, GOOG, AAPL, and AMZN.

Goldman writes that hedge funds are holding their most concentrated wagers than anytime in the past 22 years, a concentration focused in the names above. 

Goldman further writes that with such great concentration, the markets are “extremely imbalanced that could potentially cause a sharp decline if everyone attempts to sell these names at the same time.”

About one month ago, the NASDAQ 100 was in correction territory.  Today it is around a 22-month high.  The advance is predicated upon the prevailing view the Federal Reserve may pivot perhaps as early as March.  The markets have already priced in a 50-bps reduction at the July FOMC meeting.

About one month ago, following a “disastrous” 10- and 30-year Treasury Bond Auction, the narrative was rising that a “six handle” for these benchmarks was almost inevitable.  Thirty days later, longer dated yields are down about 65 bps to a “mid four handle.”

Earlier in the month, Deutsche Bank commented that this is the seventh time the markets have expected the Federal Reserve to pivot since the inception of the current cycle in March 2022.

Speaking of the Fed, the Minutes from the recent FOMC were released.  The Minutes indicated a cautious approach with all policy decisions remaining data dependent.  Markets were unfazed by the remarks.

Perhaps of significance is that policy makers cited the fiscal outlook as a leading reason for the rise in yields on Treasuries.  This contrasts with the stance taken by Treasury Secretary Yellen who stated that fiscal policy is not impacting longer dated rates.

Against this backdrop, can one perhaps conclude the odds favor higher long term interest rates given that Washington’s fiscal policy is one of spend and borrow and to heck with the possible consequences.

What will happen today? Trading is expected to wane throughout the day as the Thanksgiving Holiday approaches.

Last night the foreign markets were up.  London was down 0.14%, Paris up 0.37% and Frankfurt up 0.37%.  China was down 0.79%, Japan up 0.29% and Hang Seng up 0.79%.

Futures are flat. NVDA posted results after the close.  The company exceeded expectations but warned that export restrictions on China would weigh on its fiscal fourth quarter.  The 10-year is up 4/32 to yield 4.38%.

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Kent Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. 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. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.