The 10-year Treasury is at the highest yield in a year.  Many market luminaries have defended current lofty valuations—the highest since the records achieved during the mania of 21 years ago—by citing low interest rates as such will justify current valuations.

However, during the past several days the dynamics are radically changing with many now questioning valuations, especially technology companies that derive their lofty valuations by discounting future cash flows by some interest rate.  The higher the interest rate the lower the valuation.

The vast majority of the mega sized technology companies have warned that revenue growth will slow for the for seeable future, the result of the reopening of the economy.  According to First Trust approximately six years of revenue growth was front loaded into 10 months.  The issue at hand is the markets have valued these companies that last year’s exemplar growth will continue to infinity and interest rates will never rise.

Many bulge bracket firms from CitiCorp to Bank America to Goldman Sachs have warned of a possible 10% to 25% decline because of today’s environment.  Will such a decline come to fruition?

Contrary to popular belief, interest rates dictate equity direction not vice versa.

Commenting on yesterday’s market activity, equities were mixed with the NASDAQ declining about 0.50% and the Dow off about 0.20%.  Treasuries were moderately higher in yield.  Oil slipped as Texas may begin to thaw.

Last night the foreign markets were mixed.  London was down 0.02%, Paris up 0.49% and Frankfurt up 0.44%.  China was up 0.57%, Japan down 0.72% and Hang Seng up 0.16%.

The Dow should open nominally higher as Treasury Secretary Yellen endorsed yet even more stimulus.  Oil is off about 2% as President Biden indicated he is willing to meet with Iran . The 10-year is off 2/32 to yield 1.30%.


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.