The recent selloff pales in comparison of selloffs of years’ past.  Even though the VIX is rising, in many regards there is still a sense of complacency.  With this written, however, several organizations are opining about rising risk.

Yesterday Moody’s confirmed a long held view that ETFs “threaten to amplify systemic risk when liquidity dries up.”  Moody’s stated because of inherent miss matches between liquidity demands of ETF holders and the underlying investments a systemic risk is present that could threaten the economic viability of firms charged to maintain order.

Moody’s writes that banks used to run this business but have stepped away because of greater regulation and instead have been replaced by “technology-savvy specialists” that may not comprehend the “exogenous risks” of a liquidity induced selloff.

Many times I have commented about the regulatory environment that endorses speed and cost of execution over liquidity and capitalization.  As stated above, the issue at hand is the $3.9 trillion ETF industry has not been stress tested and in recent times of nominal volatility the system has shown some weakness.

Changing topics to the here and now, equity markets traded upon the trade headlines.  The S & P 500 did decline below the 50 day moving average, a level that some believe is significant but then rebounded.

Last night the foreign markets were up.  London was up 0.45%, Paris up 0.77% and Frankfurt up 1.08%.  China was up 3.10%, Japan down 0.27% and Hang Sang up 0.84%.

The Dow should open moderately lower on trade.  Meetings are scheduled to resume later today.  There is a general consensus that an agreement will be reached at some juncture. The 10-year is off 2/32 to yield 2.46%.


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.