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The last several months I have had little difficulty writing these remarks given the large amount of material to pick from. Today’s comments, well, I am happy to write were difficult to pen. Friday was a quiet day.
There was little reaction to the data and or profit reports.
Speaking of earnings, third quarter reporting season accelerates this week as over 100 S & P 500 companies are posting results. Analysts are now forecasting profits to fall by 7.2%, a decline led by energy and manufacturers. The narrative is beginning to rise earnings many fall for the year, the first such occurrence since 2009.
Has such a decrease been already discounted? Perhaps.
I received considerable feedback from my comment the disinflationary narrative is bordering on manic, a narrative that may soon change given that the decline in oil prices is unlikely to be repeated and from potential wage pressures because of political pacification and the dearth of qualified workers.
While I have little regard for sentiment surveys as a forward looking indicator as they are the ultimate feedback indicator, I do think it is significant sentiment is now at a three month high. The expectations index rebounded sharply from August’s early low and is sharply higher than its 10 year average. The same can be written about the current conditions index.
Historically both levels are consistent with real consumption growth of around 4%, a level considered “robust.”
If, and this is a big if, if consumption does accelerate to a 4% level, will earnings in 2016 be greater than anyone is yet suggesting? The year over year comparisons may be easy if consumption does accelerate to this level.
Commenting briefly about oil, oil rose about 2% Friday, the first advance in five days. The stated reason; the fewest number of active oil rigs in five years. Earlier in the day, crude spiked on the news a drone was shot down over Turkey. Oil reversed course, traded lower, and then reversed course again and closed around the highs of the day.
As stated many times, there is little geopolitical premium in crude. Is this about to change? If a change is indeed eminent, $60 barrel oil is indeed plausible in quick order.
There is little on the economic calendar other than housing data. As mentioned many times, housing (and autos) leads the typical recovery.
Last night the foreign markets were mixed. London was down 0.43%, Paris down 0.16% and Frankfurt up 0.43%. China was down 0.14% Japan was down 0.88% and Hang Sang up 0.04%.,
The Dow should open moderately lower on the 28th year anniversary of the October 19 crash that erased 22% from the Dow. China grew by 6.9% for the quarter, slightly higher than the consensus view but as stated many times there is little confidence in the data for a myriad of reasons. The 10-year is unchanged at a 2.04% yield.

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Ken Engelke

Chief Economic Strategist Managing Director

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.