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Equities Declined as the Treasury Department Disclosed Plans to Limit Tax Inversion Mergers.

Equities declined as the Treasury Department disclosed plans to limit tax inversion mergers.  Stocks were also spooked by Syrian airstrikes, raids that caused oil to rally.

Commenting on the former, most market participants are questioning whether or not the Treasury has the authority to levy such action, much less the intended and unintended implications and ramifications.

Will history regard this pronouncement in a similar manner as most view FDR’s attempt to pack the Supreme Court?

For those who may not recall from their eighth grade civics class, FDR attempted to appoint more Supreme Court Justices so not to rule his New Deal programs unconstitutional.  The attempt failed miserably and was a disastrous electoral and political mistake as the proposal offered overwhelming evidence that supported FDR’s critics’ views FDR was indeed acting monarchial.

I will viscerally argue the tax code is broken but reformation via fiat and regulation is not the manner in which to fix it.

Regarding Syrian airstrikes, perhaps most striking the group that was bombed is/was obscure, a group the Pentagon stated had plans to attack the West including the US.

Is this admittance a political gamble in an attempt to garner support, making the President appearing strong and proactive?  Or is this admittance a rare glimpse of honesty, honesty that could politically hurt the Administration as the President stated many times there is/was not a threat to the homeland?

In today’s hyper political world, unfortunately all events have to be viewed in a cynical political lens.

Speaking of politics, I think the environment could potentially become really ugly given the perceived importance of the midterms just 42 days away.  There is not a midterm election of a second term president whose party did not lose congressional seats.

The potential bitterness and division of this election is perhaps manifesting itself in stock prices as the bifurcation of the market is becoming widely telegraphed.   The question at hand will the mega large capitalized issues capitulate because of this uncertainty?

As stated above most have acknowledged the bifurcation between the NASDAQ 100 and the Russell 2000.   The latter is off 4% for the year and down about 8% from its July apex.  The former is up about 13% YTD and is only down about 1% from its annual high made last week.

In other words there is an approximate 17% difference in YTD return figures between the NASDAQ 100 and Russell 2000.  Wow!

What will happen today?

Last night the foreign markets were mixed.  London was down 0.10%, Paris up 0.51% and Frankfurt up 0.07%.  Japan was down 0.24% and Hang Sang up 0.35%.

The Dow should open nominally higher following a three day decline that has put the S & P 500 at a 5 week low. The 10-year is off 3/32 to yield 2.54%.


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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.