IS THE NARRATIVE ABOUT TO CHANGE?

Many times I have commented about the imbalances of today’s markets, a viewed now shared by many including several regulatory agencies including the SEC. This view has not yet made into the mainstream but I ask is this about to change.

Before yesterday’s market opening I read five wire stories from the top tier financial news organizations. One was titled “It is Only Monday Morning and I am Already Exhausted.” The premise of the story is the inability to look through short term developments believing such is only noise and focus on value. The article talked about how five words can have a massive impact on prices which has greatly distorted longer term values.

Another story was “Today Weirder than the 2008 Crisis.” The article validated my view 2008 was/is easy to explain. It made sense. Today does not make sense as there are 4 cycles in 12 weeks. Historically there was one cycle in 24 months.

Yet another discussed the distinct possibility that today is indeed different, stating that negative interest rates are here to stay, value investing is dead, FAANG will rule the equity markets forever, and the complete death of traditional socioeconomic/geopolitical analysis. Technology based passive/momentum investing is the one and only strategy.

As noted many times the trading mechanics have radically changed. Simplistically speaking the “buy side” is now the primary vehicle for market liquidity. Under times of stress, it is not known whether or not this avenue will disappear under the simple guise that “fear is more powerful than greed.” There are numerous examples that such has already occurred on a small scale.

Are the regulatory entities attempting to resolve this potential issue before a full blown liquidity crisis occurs via the changing of the Volker Rule?

Personally I am exhausted given today’s “nothing makes sense” environment. There is an old market axiom the markets can stay irrational longer than one can stay solvent. It is not a question as to if change will occur but rather when, the catalyst of such will not be known perhaps until months after it has occurred.

What will happen today? Will there be another five word tweet that moves the markets 1%? Bloomberg writes yesterday was the tenth day in August that the S & P 500 has closed above or below the 1% threshold during August. Yesterday stocks were up about 1% on a tweet.

Last night the foreign markets were mixed. London was down 0.08%, Paris up 0.30% and Frankfurt up 0.49%. China was up 1.35%, Japan up 0.96% and Hang Sang down 0.06%.

The Dow should open quiet on the ever changing China narrative. The 10-year is up 4/32 to yield 1.51%.

 

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.