Many times I have commented about the narrowest of today’s market, stating a misstep from one of the titans can have an outsized impact, an impact that is double the impact that these titans have had on the advance of the last three years.

The concentration of wealth in a few names is at historic proportions, a sign of danger and indicator of the massive imbalances at hand.  A possible cause for this historic imbalance…passive indexing and algorithmic trading that favors the mega sized capitalized issues.

According to Bloomberg, Microsoft and Apple are worth more than the entire Russell 2000.  Bloomberg writes this “phenomenon is beyond historic proportions that indicates great risk and complacency.

Bloomberg further writes Microsoft and Apple now make up 9.1% of the Index surpassing the 1999 apex of 9.0% set by Microsoft and GE.  The Newswire continued to write “a slip up in one of these two companies can trigger a severe market dislocation.”

Bank America recently wrote the 10 largest companies in the S & P 500 makes up roughly 28% of the index’s capitalization, greatly surpassing the 23% level measured in 1999.

Bank America continued to write “liquidity is challenged in today’s market” and in some measures is about 40% of levels of 10 years ago.  The Bank opined the primary reason for this lack of liquidity is “big banks have withdrawn from the market due to heightened regulations, providing less than half the liquidity they did about a decade ago.”

BofA continue to opine high frequency traders and ETFs have “picked up some of the slack left by big banks but such pay little attention to company fundamentals and usually ride on a stock’s momentum, with liquidity disappearing when needed most during times of volatility.”


The historic gap between value and growth is widely known with most stating the current environment will continue to expand and last into infinity.  It is human nature to make such extrapolations.

Yesterday I cited Federal Reserve comments that 2019 was the year of surprises, when the expected events did not occur.  Will the surprising event of 2020 be the unwinding of the most crowded trade in history?

Radically changing topics, how will the outcome yesterday’s vote in Britain be interpreted?  To many in the political class, it was a mandate between the conservatives who want to “get Brexit done” emphasizing economic nationalism and the labor party who campaigned on a “radical agenda of wealth redistribution and nationalizations.”  The conservative Boris Johnson won convincingly, a mandate, giving the conservatives the biggest majority since 1987.  Yesterday polls were regarded as an election to tight to call.

In many regards the similarities of this election to that of next year’s US presidential election is uncanny.

Commenting upon yesterday’s market activity, equities advanced as a trade deal in priciple was reached with China.   The 10-year Treasury was crushed increasing in yield by over 12 bps, the biggest decline in over three months.  Eight days ago the 10 Treasury dropped in yield by 14 bps, the sharpest decline since May 2018.  One person remarked the liquidity in the most liquid and deepest market in the world is almost nonexistent.

Last night the foreign markets were UP.  London was UP 1.79%, Paris up 1.09% and Frankfurt up 1.15%.  China was up 1.78%, Japan up 2.55% and Hang Sang up 2.57%.

The Dow should open nominally higher as the two key risks appear to be subsiding…political gridlock in the UK and punitive tariffs on China.  The 10-year is up 2/32 to yield 1.90%.


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.