Advisor Login Contact Us


Equities fell as the Federal Reserve indicated it is prepared to raise rates as the economy strengthens while acknowledging financial market turmoil may pose risks to their outlook. Some were speculating the central bank would signal a willingness to step up stimulus measures.
Equities were further hurt from disappointing results/outlook from Apple and Boeing.
Oil on the other hand rallied as there are reports that Russia and OPEC are open to discussions to reduce oil production. This was the first time in many months that stocks declined and oil rallied. Bloomberg reports the S & P 500 and oil has moved in virtual lockstep with their relationship reaching the tightest since 2011.
It is believed the Fed is still planning to raise rates three or four more times by year end. The markets think only once, thus a huge disconnect. Who is correct?
In my view the markets/economy are at a major cross road, a cross road evidenced by the outlook for monetary policy. Either growth will accelerate or markets/economies will deaccelerate.
Four years ago I was writing the election would be tectonic. Little did I know how prophetic my remarks would become. Not only are antiestablishment candidates demonstrating great strength at home but also abroad.
Government is polarized. Fiscal policy is nonexistent and monetary policy has been exhausted.
I think (two dangerous words) the economy is on the verge of greater acceleration. Home values and job availability are rising, two primary factors required for growth. Contrary to media reports, there appears to be some fiscal cooperation—perhaps the result of the polarization which is threatening the establishment–which may take some of the heavy lifting off of monetary policy.
I am not suggesting there will be 4% plus growth, but rather validating the Fed’s outlook of moderate growth.
And then there are market mechanics. In my view the middleman—the broker, specialist—are gone. It has been replaced by computers. There is no stabilizing mechanism given the absence of the traditional broker dealer who had typically taken risk positions during crisis periods. All major brokerage firms are now owned by banks, banks that are greatly punished by the regulatory—aka governmental–entities if any risk taking occurs.
The vast majority of trading is now done via momentum, trading that is cross correlated, where the only macroeconomic thought is about the moment, not what may occur tomorrow.
In my view this creates opportunity. Several weeks ago I quoted Warren Buffet. Buffet stated there are times when there is a great disconnect—for whatever the reason—between the markets and the value of a typical company. I believe this environment exists today. Unfortunately this disconnect can last for a prolonged period but will eventually end. For many this disconnect started about two years ago.
Hopefully there is light at the end of the tunnel and it is not another train getting ready to hit us once again.
Tomorrow the preliminary print of fourth quarter GDP is released. What will it suggest?
Last night the foreign markets were down. London was down 0.92%, Paris down 1.18% and Frankfurt down1.60%. China was down 4.19%, Japan down 0.71% and Hang Sang up 0.75%.
The Dow should open nominally higher as over 50 S & P 500 members report results today. Eighty percent of companies that have released earnings have exceeded expectations and 52% have exceeded sales expectations. For the period analysts are expecting a 6.3% decline.
I find it noteworthy that the markets are opening flat even though China sold off, the second time this week of a potential disconnect. Has China run its course?
The 10-year is flat.

Return To Index Page
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.