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Last week was one of the strongest weeks of the year, the reason—a potential change in monetary policy that is perhaps suggesting the economy is approaching escape momentum. The week before—the S & P had one of the worst weeks of the year, the reason—a potential change in monetary policy.
Is the market manic or is it the result of HFT and momentum driven traders? I will argue the latter as it is almost impossible to generate any type of return unless one owns 10 stocks. JP Morgan has commented the markets have never been this bifurcated between large cap growth stocks and the rest of the market.
When or will it ever change? I firmly believe that monies will eventually gravitate into issues that offer the greatest potential reward and the least amount of risk. As noted many times, I think today is analogous to 1999 and 2002. 1999 all funds flowed into select issues. 2002 all funds flowed into everything but yesterday’ select issues.
Will the pending increase in rates be the catalyst for such a transition? If the economy is at escape velocity, I can argue yes.
What will happen this holiday shortened week, typically the conclusion of tax loss selling? Will the typical company begin to outperform?
Last night the foreign markets were down. London was down 0.43%, Paris down 0.73% and Frankfurt down 0.34%. China was down 0.56%, Japan up 0.101% and Hang Sang down 0.39%.
The Dow should open nominally lower. The 10 year is down 7/32 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.