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Last Week I Commented About Market Bifurcation Referencing Bloomberg and Its Observation that 47% of NASDAQ Composite Companies are Down Over 20% YTD, a Decline that has Occurred Since July.

Last week I commented about market bifurcation referencing Bloomberg and its observation that 47% of NASDAQ Composite companies are down over 20% YTD, a decline that has occurred since July.

Friday this bifurcation was even more pronounced as the general markets were down but one company was up a lot—Alibaba.

It appeared 9 out 10 stories were about this offering, a story that reached manic and myopic historical proportions.

This week a number of IPOs are anticipated.  Will Alibaba be regarded as the proverbial historical cycle high IPO benchmark?

Perhaps if Alibaba appears on the cover of Time Magazine the answer could be yes.

The mid-term elections are about 45 days away.  If history serves as a guide, all races will narrow, a narrowing where an infinite number of conclusions will be drawn via endless talking head bloviating.

It is widely known and accepted the midterm election of a second term President is not kind to the party in power.  All Administrations lost seats.

It is now widely accepted the President has lost his credibility with only the most adamant supporters believing his pronouncements.

This loss of credibility is perhaps more critical to this Administration than to most given the President was generally reelected upon his integrity and “connectivity” to the common person not on his economic or foreign policies.

I will write a few will argue his economic policies are a success but the vast majority will state the Administration’s foreign policy is an abject failure, a failure partially the result of lost credibility.

How will this affect the election and the markets?

Many times I have commented the averages historically decline 5% to 20% during the mid-term campaign season because of uncertainty.  As noted above, the “typical” NASDAQ company is already down 20% YTD with only the largest companies supporting the indices.

Will the indices now come under pressure with perhaps Alibaba as the proverbial benchmark?

Perhaps the major reason why the indices may not capitulate is the massive cash balances yearning for a more efficient use.  The current bifurcation is already suggesting monies have exited most companies gravitating only to the largest and most liquid capitalized issues.

I can envision a scenario if a more business friendly Congress is elected, today’s declines of the typical stock will be viewed only as noise.  Study after study, survey after survey states the greatest hindrance to job and economic creation is anti-business and dysfunctional Washington.

What will happen today?

The economic calendar is moderate and includes several housing statistics, manufacturing and durable goods data, final revision of 2Q GDP, and a confidence survey.  How will these statistics be interpreted?

Last night the foreign markets were down. London was down 0.74%, Paris down 0.12% and Frankfurt down 0.07%.  Japan was down 0.71% and Hang Sang down 1.44%.

The Dow should open moderately lower as China lowered stimulus optimism. The 10-year is up 1/32 to yield 2.57%.


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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.