STANFORD BERNSTEIN ISSUED YET ANOTHER WARNING

Tech stocks rallied after China ratcheted up stimulus to combat slowing growth. The pound erased a decline against the dollar after British lawmakers overwhelmingly voted down a Brexit deal and planned a confidence vote on May’s government.

The potential stimulus in China and the weak data in our trading partner’s economies is spurring the belief of potentially looser monetary policies.

Earnings season accelerates today with the release of Bank America, and Goldman today and Netflix tomorrow.

To remind all NFLX’s summer bombshell was the beginning catalyst for a selloff of the FAANG issues which in many regards abated at year end.

Stanford Bernstein issued a stark warning yesterday. The company stated momentum stocks—those rising the most in the recent month and are closely connected to mega sized technology companies—now display a valuation gap relative to losers, a gap that widened to levels not seen since the dot-com era of 2000 when this strategy tumbled 53% in the following six months.

The data is a sign of heightened risk in the popular strategy of chasing winner as money piles into the same names meaning a reversal could mean trouble. Stanford Bernstein stated the spreads are much higher than they were in February 2009, a “catastrophic career costing period for momentum.” Additionally the firm stated the PE ratios of high momentum stocks are now double the price to earnings ratio of low momentum shares.

What will happen today?

Last night the foreign markets were mixed. London was down 0.53%, Paris up 0.17% and Frankfurt down 0.17%. China was flat, Japan down 0.55% and Hang Sang up 0.27%.

The Dow should open flat. The 10-year is off 6/32 to yield 2.74%.

 

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.