Is the circus in Washington beginning to weigh on the markets? To date Washington has been viewed nothing other than a freak show, a made for reality TV and cable show. Has all crossed over the proverbial lines? Perhaps the only concrete statement to make that if a public company acted in a similar manner as Washington, those shares would have been crushed and the Board replaced. The frightening aspect is that government spending is about 21% of GDP.

Speaking of politics, what words can be used to describe Brexit? Similar to Washington, London’s happenings have been a market nonevent. Is this too about to change.

And then there is the Middle East. In some regards words such as anarchy and brinkmanship describe conditions. In my view there is little geopolitical premium in prices.

And then there is economic activity, monetary policy and trade. In some regards economic activity is strengthening (jobs) and in other regards slowing (a third tier manufacturing report).

Monetary policy has not been a recent factor but the markets have already discounted an interest rate cut. The issue at hand is Fed officials have stated their next move in short term interest rates could be either up or down. Will this lack of clarity become a factor?

The current primary market catalyst is trade, in which volumes have already been written.

The question at hand is whether the other five issues listed above evolve into major catalysts?

Radically changing topics, yesterday Merrill Lynch issued a warning regarding “FANG.” Merrill wrote they are about to get “smacked down” by the regulatory entities with risk heavily weighted to the downside. The report did not mention trade but as widely discussed 59% of technology sales are from abroad and the vast majority of production facilities are domiciled in China.

Volumes have been written but warnings have yet to be heeded about the massive concentration of funds in these names. Is Merrill attempting to get out in front of the issue?

Commenting about yesterday’s trade induced selloff, Bloomberg writes the selloff is far from memorable. Yes 86% of stocks fell in the S & P 500, just shy of the 90% readings that convey emotion and lopsided selling. Moreover 80% of the volume was in declining issues. But that is the issue…the volume was anemic. If we use history as a guide, light volume declines are viewed as suspect.

All must remember that 2019 advance was also on light volume.

Commenting further about yesterday’s action, the 10-year Treasury traded to the lowest yield since December 2017.  There are also questionable reports that China is “dumping” Treasuries. I ask if China was really dumping Treasuries, would yields not be rising instead of falling especially as the dollar is also getting crushed? [A falling dollar can cause higher interest rates]

The falling yield also begets another question? Treasuries trade on inflationary expectations and if tariffs are as hyper inflationary as the mantra is suggesting, then why did yields fall?

Wow! I am happy today is the start of a three day weekend!

What will happen today?

Last night the foreign markets were up. London was up 0.80%, Paris up 0.95% and Frankfurt up 0.92%. China was up 0.02%, Japan down 0.16% and Hang Sang up 0.32%

The Dow should open moderately higher at the end of a bruising week that was focused on trade. The 10-year is off 2/32 to yield 2.33%.


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.