WELCOME TO SEPTEMBER

Welcome to September and historically the weakest month for equities.  I will skip the reasons but will instead concentrate upon today’s prevailing narrative.

As noted earlier, many of the bulge bracket firms are forecasting a decline of 5% to 20% in the coming weeks.  Their rationale…lack of volatility, monetary policy, earnings and the election.  In other words, the historical factors facing the markets.

As noted in prior remarks, I think today’s risks are exacerbated because of the proliferation of ETFs and the total domination of the markets by cross correlated technology based trading.  Such trading constitutes about 89% of the NYSE volume according to the NYSE.

Simplistically speaking everyone owns the same 10 securities and when selling commences because of higher interest rates—a primary variable of most valuation models—all hell can potentially break out.

I believe most do not have any idea about current risk levels in the equity markets because of the above environment and the bulge bracket firms are attempting to forewarn all.

And then there is the debt market, more specifically the sovereign debt market.  Globally there is over $11 trillion of negative nominal yielding sovereign debt and total of $18 trillion of negative real yields.

August was the worst month for the Barclays US Treasury Index since June 2015.  The 10-year Treasury rose to a 1.58% yield from 1.45% registered on July 29.  What happens if yields rise to the Federal Reserve’s year end Central Tendency of 3.0%?   Perhaps the only words to write is that it will be really ugly.  I cynically write is the 10-year Treasury the risk free benchmark??

Trading was again quiet yesterday.  Volume was anemic.   Will most today do nothing ahead of tomorrow’s pivotal BLS employment report?

A closing thought.  If markets do decline 5%-20%, this would be the most forecasted drop in history.

Last night the foreign markets were up.  London was up 0.13%, Paris up 1.08% and Frankfurt up 0.52%.  China was down 0.76%, Japan up 0.23%and Hang Sang up 0.81%.

The Dow should open nominally higher amid signs of global growth.   The 10-year is off 4/32 to yield 1.60%.

 

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.
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