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Equites initially advanced as oil inventories were not as great as expected, then traded lower as the dollar rallied which caused crude to erase a 4% advance, and then rallied at the close on monetary policy assumptions posting about a 0.50% advance.

The S & P has climbed about 12% since it 22 month low on February 11, erasing the worst annual start for equities on surging crude and central bank actions.  There is virtually no chance of an interest rate hike in April and the probability of an increase in June has now fallen to 28% from 46% a week ago because of Yellen’s comments, comments suggesting the central bank would tolerate inflation above its target instead of tightening policy too soon.

Will the outlook change yet again if tomorrow’s employment report is stronger than expected?  Probably.

The S & P has now gone 12 sessions with a swing of at least 1%, the longest since June according to Bloomberg.   Is volatility subsiding or is this just the calm before the storm?

Earning season commences April 11.  Analysts are forecasting S & P 500 profits to fall by 9.3% compared with predictions for a 4.5% drop two months ago.  How will these results be interpreted?  Will volatility again increase or will the focus remain on monetary policy and crude?  I will argue the latter.

What will happen today?

Last night the foreign markets were down.  London was down 0.40%, Paris down 0.89% and Frankfurt down 0.47%.  China was up 0.29%, Japan down 0.71% and Hang Sang down 0.13%.

The Dow should open flat.   March will be the first “up” month in four as a huge rally in oil propelled gains, a rally few had anticipated 30 days ago.  The dollar also weakened a weakening that few also had expected.  The 10-year is up 2/32 to yield 1.82%.

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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.