Yesterday equities were mixed.  The Dow closed up about 1.1% while the NASDAQ up about 0.2%.  Bloomberg data suggests if Tesla was not included, the NASDAQ would have been down almost 0.4%.  The catalyst for yesterday’s trading…positive vaccine news.

It is anticipated vaccination may commence within three weeks.  I rhetorically ask will the distribution of the vaccine become the next focal point of “socially responsible actions.” Unfortunately, everything today has become political where common sense is often times lacking.  Many are fearful of voicing opinions that may not confine to the prescribed and accepted media positions, fearing attacks on one’s character.

Speaking of such, the five-year Treasury auction was met with poor demand.  The bidding was one standard deviation below its one-year average.  Some are perplexed by this lack of demand given consistent Fed statements that it intends to keep interest rates at 0.00% for a prolonged period of time to permit inflation (and growth) to move above its accepted speed limit.  The issue at hand is the length of time and degree to this above trend limit has not yet been prescribed.

Can I suggest the recent underperformance of growth as compared to value is the result of an unquantified monetary policy?  As noted a gazillion times valuations are primarily determined by corporate cashflows dictated by an interest rate.   The yield curve is suggesting greater inflationary pressures (and growth) is possible in the intermediate future.

Bloomberg writes the S & P 500 earnings yield is the “tiniest” in 20 years suggesting mediocre returns at best in the decade ahead—if the experience following the dotcom bubble is any indication.

The earnings yield is currently 3.53%, the lowest since the 3.50% reading achieved on June 21, 2000.  Regarding the NASDAQ, Bloomberg writes those who bought a capitalized basket of NASDAQ shares would have lost about 25% over the next decade.  Bloomberg further writes today’s tailwinds may become an overbearing headwind if rates rise.

Bloomberg opines today’s treasury yields is equivalent to a stock trading at 120x earnings and are priced beyond realistic levels thus offering no room for error or mis steps.

Tomorrow the Minutes from the recent FOMC meeting are released.  Will it offer any more insight into future monetary policy?

What will happen today?

Last night the foreign markets were up. London was up 1.06%, Paris up 1.26% and Frankfurt up 0.95% .  China was down 0.34%, Japan up 2.50% and Hang Sang up 0.39%.

Lead by energy and industrials, the Dow should open moderately higher upon the start of Biden’s formal transition to the Presidency, former Fed Chair Yellen appointed as Treasury Secretary, increased prospects of a very large stimulus bill and vaccine optimism.  NASDAQ futures are flat    The 10-year is off 2/32 to yield 0.87%.


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.