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Is the Market Ripe for Value Stocks?

The headlines are ugly.  The Greek economy teeters on the brink of collapse with a possible exit from the EU/Euro.  Puerto Rico may delay some debt payments.  China’s stock market has suffered the greatest drop since at least 1992, imploding over 25% in about three weeks.

Sovereign debt markets, specifically the German Bund and to a lesser extent the US treasury which are viewed as “safe haven” also been also hurt, perhaps on expectations of greater economic growth in the intermediate future.

I think it is safe to write nations around the world have taken on unprecedented amount of debt all with the hope of igniting some growth.  In many aspects, however, things that most thought would happen have not.

Speaking of which, yesterday’s market reaction to the outcome of Greece’s referendum was a relative nonevent.   If the headlines were written 5 years ago, the averages would be down 1000 points, not 45 points.

Is this result that most of Greek debt is owned by the IMF and ECB?  Is it a function that Greece is a relatively small economy whose GDP is about half of Wal-Mart’s revenues?  Or was the muted response the outcome of the massive ECB QE program?

Like all, I hope there is not a delayed negative reaction.

Many times I have commented about the market’s bifurcation, defined as a massive flow of funds from one momentum name to another.  Is this about to change?  The past two weeks I have read several reports commenting about the value in “value” stocks and how the market may be ripe for such a transition.

For value oriented investors, such a transition cannot occur quickly enough.

Last night the foreign markets were down.  London was down 0.12%,  Paris down 0.59% and Frankfurt down 0.44%.  Japan was up 1.31% and Hang Sang down 1.03%.

The Dow should open moderately higher on the belief there will be a positive solution to the Greek problem, an open ended statement as I am not defining “positive solution.”  Moreover, second quarter earnings season commences tomorrow and the hurdle is low, perhaps suggesting possible upside surprises.  The 10-year is up 13/32 to yield 2.24%.

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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.