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Yesterday I wrote global economic conditions are not as dour as the headlines suggest. I typically write the body of these comments the night before, fully aware of the upcoming statistics but not the data itself.
Data released yesterday expressed the above sentiments as the domestic ISM posted a mild upside surprise suggesting the manufacturing sector is still expanding albeit is facing strong headwinds because of the dollar. European manufacturing statistics also exceeded estimates.
While the headline Chinese data expressed lingering weakness, other statistics demonstrated acceleration.
Equities rallied on the global data indicating stable economic conditions and improving sentiment. The leaders were energy and health care. Commenting about energy, crude fell yesterday on supply concerns.
Bonds fell nominally even though fed fund futures are now suggesting a 50% chance of a rate hike in December vs almost a 0.0% chance several weeks ago.
Is the advance sustainable, as I can argue a large portion was/is fueled by HFT?
As written many times HFT is a function of technology and momentum with the greatest capitalized companies benefitting at the expense of most others. There is little analysis and is passive in nature.
Many years ago an icon of that era stated money management is more art than science. One buys and holds a company for a prolonged period of time, perhaps as long as 10 years. He further stated almost everything in between is noise.
While I will readily acknowledge I am grossly editing his comments, I am not embellishing his intents. If passive investing is so easy, everyone would be infamously rich.
I think the days of individual security research are on verge of reemergence where the individual equity outperforms the indices in a similar manner as to that of 2002-05, partially the result of stronger than expected economic activity.
Wishful thinking? To remind all 1999-2000 was the last era of momentum driven trading, an era that ended disastrously for those who owned the “must own” companies. History is rarely different. There are just different people.
What will happen today? There are several manufacturing data points released.
Last night the foreign markets were down. London was down 01.4%, Paris down 0.26% and Frankfurt down 0.48%t. China was down 0.25%, Japan down 2.10% and Hang Sang up 0.89%.
The Dow should open nominally lower on profit concerns. There are over 100 S & P 500 companies posting results this week and of those who have reported, 75% have exceed profit estimates while 55% missed sales projections. For the third quarter earnings are now projected to drop by 3.9%. The 10-year is off 3/32 to yield 2.18%.

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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.