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An Uncertain Future Ensures Volatility Will Remain.

Stocks fluctuated on merger and earning news as the Dow closed down about 100 points and the NASDAQ up 20 points.  Approximately 140 S & P 500 companies will post results this week, results that have been dumbed down considerably.  Analysts are expecting earnings to slump through September, albeit the degree of this decline is open to wide discussion.

And then there are interest rates.  Most valuation models are comprised of corporate cash flows discounted by some interest rate.  Similar to earnings, the discussion regarding the timing of a change in interest rates is wide and intense.

To add to the uncertainty is oil prices.  Similar to earnings and interest rates, opinions are varied regarding where crude will trade by September.  I am bullish on crude for a myriad of reasons including the distinct possibility that spare capacity may be dwindling as Saudi Arabia is pumping at full throttle.  Some are suggestingif conditions remain unchanged, excess global daily global production will fall from around 1.4 million barrels daily to about 700,000 barrels.

Some have commented today’s environment is more uncertain than years past.  In many aspects I agree with this view given there is a lack of conviction on many levels and as inferred above there is considerable uncertainty at the Fed.  I am not suggesting the Fed is omnipotent; the markets however had become adjusted of near unanimous thinking from this august body.

All of the above is impacting trading.  Some will opine this lack of certainty is perhaps preventing a major market decline, a view that I share.  However this uncertainty will also ensure volatility will remain.

Last night the foreign markets were mixed. London was down 0.65%, Paris down 0.43% and Frankfurt down 0.82%.  Japan was up 1.13% and Hang Sang up 0.30%.

The Dow should open moderately lower on uncertain earnings.  The 10-year is unchanged at 1.90%.  Oil is almost unchanged.

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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.