Welcome to the second half of 2020.  During the first six months, the markets were faced with an impeachment, a pandemic, an economic calamity, civil unrest and perhaps the commencement of the proverbial second wave.

Wow! What’s next? A war? An unexpected political scandal that cripples a national party? An economic boom that creates an inflationary environment that increases income inequality? What about nothing of great significance, another Black Swan event?

Many including myself are exhausted.

Perhaps the only certainty is the political rancor will increase given November’s election. I do no think it is an embellishment to write this election could greatly impact tomorrow.

Society is angry. According to the American Psychiatric Association, even before the pandemic, 22% of Americans were angry on daily basis, up from 15% in 2015. Eighty seven percent think society is in a bad place. Is this the result of social media, a distribution method designed to pander to one of nature’s most primitive instincts of anger and divisiveness for economic value via more screen time?

Several weeks ago, I referenced internal Face Book memos that expressed concerns their algorithms could amplify the above, concerns that were dismissed.

To write the obvious, anger will be a large component of the 2020 campaigns.

Radically changing topics, the data is continuing to suggest a “V” recovery is at hand. FRB Chair Powell reiterated comments the Committee is surprised at the speed and strength of the recovery, warning that such a recovery could be fleeting if virus cases rise considerably.

June’s consumer confidence rose by more than forecast, jumping the most since late June 2011. Attitudes about the present situation registered the largest one month gain since 1974.

Today is the release of the private sector ADP employment survey and the ISM Manufacturing Index. Will both surprise on the upside?

The IMF revised their 2021 growth forecast nominally lower but even with this revision 2021 global growth of 5.4% in the fastest growth since 1964.

In a V shaped recovery, smaller caps tend to outperform. 2020 has been all about large cap growth, up about 6.6% versus a 27.4% decline for small cap value. This is the greatest difference between these two sectors since at least 1949.

Could the second half of the year be all about small cap value, where an economic boom generates inflationary pressures the hinders Wall Street but aids Main Street? If gold is to be used an indicator, the answer is yes. Gold is at the highest level since 2011.

What will happen today?

Last night the foreign markets were down. London was down 1.16%, Paris down 1.37% and Frankfurt down 1.52%. China was up 1.38%, Japan down 0.75% and Hang Sang up 0.52%.

The Dow should open moderately lower ahead of a massive data dump that could offer more evidence of a V shaped recovery. The 10-year is off 7/32 to yield 0.69%.


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.