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Yesterday I referenced a Bloomberg wire story stating that during the last ten days the cross correlated trades that has been prevalent during the last 16 months is collapsing. Yesterday the trend appeared to be continuing. Is there a tectonic shift taking place in the market as momentum is now underperforming?
As widely discussed mega capitalized growth has outperformed value since 2010 with the largest capitalized momentum issues grossly outperforming everything by a 55 point margin during 2015.
Yesterday I referenced a JP Morgan study suggesting the last time value was as discounted as it is today was 1980. JP Morgan used the term “extreme premium” to describe the current relationship.
Many times I have opined the most basis tenant to make a sector to move higher is more buyers than sellers. If everyone owns something, who is left to buy when selling commences?
Is a major transition at hand? Unfortunately only history will state if one is indeed in its infancy.
Last night the foreign markets were down. London was down 0.56%, Paris down 0.97% and Frankfurt down 0.98%. China was down 2.87%, Japan down 1.42%and Hang Sang down 0.40%
The Dow should open nominally lower, partially the result of a small decline in oil. Today is options expiration day. Will volatility be accentuated or has positons already been closed out? I think the latter. The CPI is also released. Will it validate or nullify Wednesday’s PPI data which were considerably higher than the consensus estimate because of rents.
All must remember that OER or what someone thinks their house can be rented is about 30%-32% of inflationary indices. There is a diverse argument between the relationship of OER and rental rates—who leads what. A major reason why inflation is “well anchored” is because of OER which is still bumping along its bottom.
The 10-year is up 3/32 to yield 1.73%.

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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.