The indices are on the verge of rolling over.  Bloomberg writes for the fifth time this year the S & P 500 has traded to this pivotal support line and in every instance rebounded.  Will today be different?

As noted last week, the “typical” stock rolled over about 45 days ago with the mega sized capitalized issues supporting the indices.

Yesterday Treasuries continued their relentless advance yet the equity markets stumbled, an inverse of the last two months.  Is this significant?

It appears every iconic money manager and economist is openly questioning the insatiable demand for Treasuries in the face of generational high inflation and record demand for monies by the government.  The oxymoronic move is one of historical proportions and could perhaps be studied in business classes for many years.

JP Morgan commented yesterday the markets are behaving irrational, the reflationary trade will return with the same vengeance as the “risk off trade” remerged.  The Bank further commented there are “influences” not yet fully known or understandable with such explanations only offered in months to come.

Goldman commented yesterday that last week the month to date average daily notional amount in options traded rose to a record, rising about 45% above previous records.  Approximately half of the volume was in out of the money call contract in amounts less than 10 for the mega sized tech issues.  This is inherently short term bullish, thus begets the question why is the S & P 500 about to roll over?

Goldman opines today’s environment is similar to the massive transition that occurred at year end and beginning of 2021, validating JP Morgan’s view the reflation trade may return at the same velocity as the “risk off trade” remerged.

Will these views come to fruition?  Unfortunately, only history can answer this question.

The accepted catalyst for yesterday’s market action was the Delta COVID variant, geopolitical jitters after the US and the UK accused the Chinese government has been behind a series of ransomware attacks and data theft as well as rising inflationary pressures that will impact margins.

What will happen today?

Last night the foreign markets were mixed.  London was up 0.36%, Paris up 0.49% and Frankfurt up 0.11%.  China was down 0.07%, Japan down 0.96% and Hang Seng down 0.84%.

The Dow should open nominally higher. The 10-year is up 7/32 to yield 1.17%. Bloomberg writes this morning there is near unanimity that the relentless Treasury rally is “confusing and confounding” with the Newswire equating prices greater than the NASDAQ bubble of 2000.


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.