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ALWAYS EXPECT THE UNEXPECTED

Markets, led by energy and defense, staged a strong advance following the Paris bombings. Some were expecting considerable selling, the result of the proverbial fear trade.
Did the opposite happen because there may now be a change in the monetary tightening time table? Or was the rally the result from the belief the attacks did little to alter the economic landscape? Or were the gains technical in nature as the averages traded to moving average lines and then rebounded?
I think it was a combination of all of the above.
Commenting about energy, before the Paris attacks, the Pentagon stated it would now begin targeting ISIS distribution and transportation infrastructure to financially cripple the terrorist organization. Yesterday it was reported France destroyed approximately 125 oil tanker trucks.
Will the bombing continue and will it affect supplies? Will ISIS retaliate on other distribution mediums?
Are supplies around an apex as it was also reported that Iraq, OPEC’s second largest producer, will have a production decline given the lack of infrastructure investment?
The hallmark of the last 12 months in the energy sector is false starts. Typically a bottom is formed when all least expect given some unexpected externality.
What will happen today? To write the obvious, if there is not another attack, Friday’s events will be quickly forgotten by the markets. However if there were another attack in quick order, the terrorism premium may emerge.
Last night the foreign markets were up. London was up 1.76%, Paris up 2.30% and Frankfurt up 1.95%. China was unchanged, Japan up 1.22% and Hang Sang up 1.15%.
The Dow should open moderately higher as two top tier retailers exceeded profit expectations. There is now a growing belief the economy is strong enough to withstand a change in monetary policy in the coming weeks. The 10-year is off 5/32 to yield 2.29%.

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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.