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I Like Many Thought Last Year’s Plunge in Energy Prices Would Translate into Stronger Retail Sales. It Did Not Happen.

I like many thought last year’s plunge in energy prices would translated into stronger retail sales.  It did not happen.  Bloomberg writes sales from 66 of the 84 companies in the S & P 500 that rely on discretionary consumer spending are only up 0.5%.

Goldman writes the $150 billion tax cut via the 50% plunge in crude was either saved or used to reduce debt.

Talking about the unexpected, April’s PPI fell instead of rising which permitted a brief reprieve from the massive sell off in Treasuries, the dollar to continue its voracious five week decline and gold rising to the highest level since February.

Yesterday I commented how many, including me, were wrong about the direction of the dollar following nine consecutive months of gains.  Most had thought the dollar would maintain its current value, not fall to its lowest level in over four months following the longest losing streak since October 2013.

The decline in the greenback was a contributory reason for yesterday’s advance as the odds of earnings disappointments via currency distortions are hypothetically lower.

Speaking of yesterday’s market action, equities were also encouraged by a nominal decline in Treasury yields from YTD highs; a decline which I think is more of a dead cat bounce than anything of substance given that last week’s jobless claims were the lowest in 15 years.  As widely known, monetary policy is now essentially predicated upon one variable…jobs.

Last night the foreign markets were up.  London was up 0.27%, Paris up 0.13% and Frankfur down 0.23%t.  Japan was up 0.83%and Hang Sang up 1.96%.

The Dow should open flat as global debt stabilized.  The dollar pared a fifth weekly decline.  Oil is headed for the longest weekly runoff of gains since trading started in 1983 according to Bloomberg.  The 10-year is up 5/32 to yield 2.21%.

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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.