In my view the outcome of the Fed meeting was largely as expected.  The Chairman stated we are in the most severe economic downturn “in our lifetime” and “the path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check.” 

Powell further stated “in recent weeks there has been an increase in virus cases and the renewed measures to control it are starting to weigh on economic activity.”   

There was a reiteration in the statement “that the pandemic poses considerable risks to the economic outlook over the medium term…and the fed funds rate would remain near zero until it is confident that the economy has weathered recent events and is on tract to achieve its maximum employment and price stability goals.”

Even though the outcome was largely as expected, equities gained momentum late in the afternoon for most had interpreted the remarks as the Fed has not even thought about raising rates.  The decline in the dollar or advancing gold prices were not even mentioned.

Speaking of which, gold reversed earlier day losses and closed higher.  The dollar fell.

Radically changing topics, initial estimates of second quarter GDP is released at 8:30.  Growth is expected to contract by a record 35% annual rate.  I must write that was yesterday.  Some might interpret the data as this is where the economy will return if lockdowns are again implemented. 

As noted several times, in my view society will not tolerate the return of these extreme measures.

I do not think it is inflammatory to write Covid is a major political issue and as in war truth is the first virtue lost in politics.  What does one believe?  The US is conducting over 800,000 tests daily and with greater testing more cases will be discovered.

Some have asked why cases in Europe are not surging.  According to the WSJ testing in the US is greater by two or three times.  Europe is largely testing only if one is exhibiting symptoms or had known contact with an infected person.  The US is essentially carpet-bombing society with testing.

I have always believed that we must learn how to live with the virus.  Learn who is most at risk and offer the at-risk population a choice as to whether or not to adopt extreme measures rather than forcing extremes measures down all of society’s collective throats. 

To write the obvious, Covid has greatly clouded views.  Bloomberg wrote yesterday 19% of S & P 500 companies that have posted results have beat or missed estimates by 50% or more, the highest percentage since at least 2010.  Will this trend continue?

What will happen today?  Four of the five largest companies in the S & P 500 post results after the market closes…APPL, GOOG, FB and AMZN.  

Reiterating Goldman Sachs research, there are five stocks that makes up 26% of the S & P 500, the largest representation ever recorded by the five biggest names since at least 1980.  If these stock stumble, so does the S & P 500 thus suggesting there is considerably risk in the indices.

If the five largest companies decline in aggregate by 10%, in order to keep the market trading flat from current levels, Goldman writes the bottom 100 S & P 500 stocks would have to rally by a collective 90%.

As noted earlier, AAPL, GOOG, FB and AMZN post results at the close.  This is 80% of the biggest names in the S & P 500.  The fifth name is MSFT.  MSFT posted results last week, results that were deemed as “not quite good enough.”

If the majority of these names stumble, volatility in the S & P 500 could rise.

Wow!  For market participants today can indeed be extremely pivotal perhaps “A day that could live in infamy.”

Last night the foreign markets were down.  London was down 2.09%, Paris down 1.83% and Frankfurt down 3.01%.  China was down 0.23%, Japan down 0.26% and Hang Sang down 0.69%.

The Dow should open nominally lower ahead of a monster earnings day, GDP data, virus fears and stimulus stalemate.  The 10-year is up 6/32 to yield 0.57%.


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.