THE NASDAQ 100 IS UNSTOPABLE; POWELL’S UPCOMING REMARKS

The comparisons between 2000 and 2020 are rising exponentially.  Last year the NASDAQ 100 rose 38%.   In 2020 amid a raging recession and plunge in profits, the NASDAQ is up 37%.

Some comparisons include “Y2K” and today’s cloud computing, the then iffy public offerings to today’s blind faith special acquisition companies to stock split investing to today’s “slice share investing”, to anything with dot.com to electric vehicles.

Bloomberg writes few are daring to short as the NASDAQ 100 short interest as measured by QQQ is 1.5%, the lowest since March 2019.  Some have commented the COVID crisis is the perfect environment for the mega cap tech firms for their business models excel in a lockdown atmosphere.

Bloomberg writes the NASDAQ 100 is up 10% in August and the advance since January is the most forceful since the dot com years at the turn of the millennium.

The basis for yesterday’s surge is the result of rising expectations for loose monetary policy for the foreseeable future.

As noted yesterday FRB Chair Powell is expected to radically change monetary policy.   Some believe he will indicate the Federal Reserve may keep short term interest rates near zero for five years or possibly more after it adopts a new strategy for carrying out monetary policy, taking a more relaxed view toward inflation, even to the point of welcoming a modest, temporary rise above their 2% target to make up for past shortfalls.

Wow!  I cynically ask is the FRB trying to get ahead of inflationary expectations?  Does the Fed know inflation will rise and the Committee is just trying to do early damage control?

As noted many times there are only two ways to overcome massive debt; restructure or inflationary growth where today’s debt will be paid back with tomorrow’s cheaper dollars.

Some believe today’s massive NASDAQ 100 advance is shakier than then tech bubble as it is predicated upon a COVID induced Fed rather an incredibly strong economy.

I ask what happens if questions are raised about the durability of the Fed?  What happens if there is a potent vaccine?  What happens if growth continues to surprise on the upside, the result of surging M-2 growth and monetary velocity?

Wow!  That is radical; the NASDAQ declines because of economic activity.  But is it?  Every sell off of the last 8 years for the exception of March 2020 was the result of stronger than expected growth.

What will happen today?

Last night the foreign markets were down.  London was down 0.30%, Paris down 0.54% and Frankfurt down 0.36%.  China was up 0.61%, Japan down 0.35% and Hang Sang down 0.83%.

The Dow should open nominally lower as some are beginning to question the incredible advance in a handful of companies.   The 10-year is up 4/32 to yield 0.67%.

 

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.