Will political uncertainty begin to weigh upon equity prices?  The world is dramatically changing.  The EU holds elections in May and right of center parties are expected to capture over a third of the seats.  France’s President Macron is desperately appealing to the populace to continue with the status quo of the globalists utilizing comments such as this is the greatest threat to the political order since WWII.

And then there is Brexit.  How will this unfold?

In the US, the socialist rhetoric is rising every day and a public split is occurring in the Democratic Party between the newly elected members of Congress and those of the Establishment which hold more moderate views.

Finally there are the ongoing Trump investigations.  Is this noise or will it morph into something of significance.  One can conclude that such will be ignored and it is an example of the Democrats overplaying their hand.  On the other hand even though little new may be learned the inquiries will ground the Administration into the ground via exhaustion and alleged issues will remain front of center until 2021.

Personally I am exhausted by the vitriol emanating from both sides of the aisle but will acknowledge it is part of the democratic process.  Even though I was only a child in the late 1960s and early 1970, I do not think the intensity today is as great as it was in those years.  Cities are not burning and college protesters are not being shot.

Radically changing topics, the OECD again lowered global GDP forecasts, the result of trade and European weakness.

Commenting upon trade, the trade deficit rose to the highest level in 10 years, the result of American economic strength and the value of the dollar.

Tomorrow is the release of February’s labor report.  Yesterday the private sector private sector ADP report was nominally lower than expectations but there was a huge upward revision in January’s data.  Many have been perplexed about the lack of wage inflation.  [Note: wages are rising at the greatest pace in a decade albeit not at the pace most would expect given current perceived conditions]

I will argue it is the result of a low labor participation rate (LPR).  There is a vast pool of uncounted workers that can potentially reenter the workforce as conditions improve, thus permitting greater economic growth than expected accompanied by nominal inflationary pressures.

The LPR is over 3% lower than when the economy exited the recession in 2009.  I believe the low LPR is a major reason why economic growth languished around 1.3% during the Obama Administration.  Since 2016 the LPR has increased about 1%, a major catalyst for today’s growth rate.

Markets traded lower yesterday on growth fears.

Speaking of growth, Stanford Bernstein wrote yesterday the gulf between value and growth is at the highest level in seventy years.  Wow!  Bernstein writes that since 2006 value has lagged growth and the gap between the cheapest and priciest companies is now at levels that cannot be ignored.  The analysts commented that there could a considerable rebound in the value investing strategy in the next 6-12 months.

To put this period into a different perspective, the guru of value investing, Warren Buffet, bought Berkshire Hathaway in 1962, thirteen years after the difference between value and growth was at today’s levels.

Last night the foreign markets were down.  London was down 0.38%, Paris down 0.32%  and Frankfurt down 0.45%.  China was up 0.19%,  Japan down 0.65% and Hang Sang down 0.89%.

The Dow should open moderately lower on growth concerns.   The 10-year is up 4/32 to yield 2.68%.


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.