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In my view the Beige Book offered little surprise.  The statistical compilation utilized at the upcoming Fed meeting stated the economy expanded at a modest pace across most the country since mid-April causing the labor market to tighten as employers continued adding jobs and nudging wages higher.  Additionally prices grew “slightly” in most districts.

Fed fund futures—or an indicator of market sentiment—were unchanged following the release of this document; a 24% chance at the June meeting and a 53% chance by the FOMC’s July session.

As noted the markets were little affected by the Beige Book as equities had already rebounded from modest losses following a report that Saudi Arabia may agree to a production cap.

The rebound was led by the value candidates which recent statistics indicate have received $5.5 billion in fresh cash in 2016 where growth has witnessed a 6.2 billion withdrawal.

Many times I have commented about the massive outperformance of growth versus value for many years.  Growth is dominated by the handful of mega capitalized momentum issues.

Data provided by Bloomberg indicate value has been a lost cause since July 2006, the longest streak on record, inferring such long underperformance is the result of momentum investing and ETF mania which are essentially closet indexers chasing the same few companies.

Ned Davis research states the growth edge has gone on about three times longer than what it normally has since records dating back to 1932.

Why the recent outperformance of value?  I would argue four reasons.  First is lack of ownership. Second growth is price to perfection.  Third value as compared to growth is the cheapest since at least 1980.  Fourth, value stocks historically outperform when the economy is recovering.

In my view a major reason of mega capitalized growth’s hegemony over the last decade has been their ability to grow even when GDP expands slowly.  As all know, the current recovery is the weakest on record since WW II where escape momentum has thus been elusive.

Is this about to change??

What will happen today?  The ADP Private Sector Employment survey is released, so are Challenger Job cuts and weekly jobless claims. How or will this data influence opinions for tomorrow’s BLS report?

Last night the foreign markets were up.  London was up 0.34%, Paris up 0.05% and Frankfurt up 0.07%.  China was up 0.40%, Japan down 2.34%and Hang Sang up 0.47%.

The Dow should open flat ahead of a monthly jobs report and outcomes of key meetings for OPEC and the ECB.  The 10-year is unchanged at a 1.83% yield.

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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.