IS A TECTONIC ROTATION IN ITS INFANCY?

Equites fell amid hawkish comments from Federal Reserve officials.  High dividend shares and companies sensitive to a higher dollar declined the most while banks gained.  Utilities are now down for eight consecutive sessions.  Consumer staples and phone companies also got hit.

As noted many times the above sectors are grossly over owned.  Several weeks ago I commented that according to Bloomberg if utilities traded at their aggregate average yield this sector would decline about 45%.  Consumer staples would decline about 42% if this group reverted to its average dividend yield.

Wow!  Most have yet to acknowledge the interest rate risk inherent in these shares.

Speaking of interest rates, the bond market fell again yesterday with yields approaching pivotal technical points.  The ECB stated yesterday that it would gradually wind down bond purchases before the conclusion of its $1.9 trillion QE program.

The next several days the economic calendar is busy culminating with Friday’s release of the BLS employment survey.  How will the data influence the perceptions of monetary policy and the direction of some of the most over owned sectors?

Last night the foreign markets were mixed.  London was down 0.53%, Paris down 0.56%, and Frankfurt down 0.59%.  China was up 0.21%, Japan up 0.50%, and Hang Sang up 0.42%.

The Dow should open flat ahead of a data deluge.  Oil is up again because of another unexpected decline in inventories, its fifth consecutive unexpected decline.   The 10-year is flat at 1.68%.

 

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.