THE INTENSE VOLATILTY IS CONTINUING

Yesterday’s equity volatility was intense.  The S & P opened lower by over 1%, gained about 2% and then declined 1% in the last hour.   The volatility was even more intense in the NASDAQ.

As widely discussed, Monday’s decline was the sharpest since October 2020.  Year to date, stocks have had the second worst start of the year since 1990 eclipsed only by 2009.  The Goldman Sachs index of the 25 most widely owned companies is down over 31% from their apex.

And then there is Europe.JP Morgan’s trading chief commented “our clients, especially European clients, are under extreme stress.”  He further stated the “the markets are extremely treacherous, and our trading revenues are down 11% to 14%.”

The only S & P 500 sector that is positive for the year is oil, boosting an approximate 38% YTD return.  Some believe the oil sector is reaching its apex. Unfortunately, only history will answer this question but focusing on what is known the western democracies have made it largely prohibitively expensive and difficult to explore or lend for oil, thus forcing the western democracies to rely upon our adversaries for supplies.

The legislative environment could change only if there is a change of power in the western democracies to governments that are more fossil fuel friendly.  As written many times, green proposals are popular but green policies ferment civil unrest.

What is also known the alternative technology is not yet available or efficient.  The key word is yet.  I reiterate a long-held view crude must reach $250/barrel for a realistic alternative to be discovered under the simple guise necessity is the mother of all inventions.  In my view the replacement may be a technology that may have not yet discovered.

What is also known is historically oil comprises about 10% of the capitalization of the S & P 500 and today energy comprises less than 5% of this benchmark’s value.   Before last year’s all time low of 2.9%, the percentage share of the S & P 500 capitalization never declined below 5%.

For a sector/company to move higher, there must be more buyers than sellers.  Moreover, statistics dictates that there will always be a reversion to the mean and the odds favor moving closer to the mean versus away.

What will happen today?  Will any attention be focused on the JOLTS Job Openings data or will it continue to be all about Ukraine?  I think the latter.

Last night the foreign markets were mixed. London was up 1.36%, Paris up 4.30% and Frankfurt up 4.56%.  China was down 1.14%, Japan down 0.30%  and Hang Seng down 0.67%.

Equity futures are up about 1.50% on perhaps “dip buying” wagering that the global economic impact of escalating sanctions is already reflected in market prices.  Oil is down about 2% to around $121/barrel.  The 10-year is off 18/32 to yield 1.92%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. 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. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.