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The outcome of the Fed meeting was as largely as expected.  The Central Bank is on course to increase rates in December as strong economic growth, higher tariffs and rising wages look set to spur inflation.

The Fed stated “economic activity gas been rising at a strong rate” and job gains “have been strong” while repeating its outlook for “further gradual” rate increases.  Risks to the outlook appear “roughly balanced” while inflationary expected were described as “little changed on balance.”

Fed officials will update their forecasts in December having previously penciled in three increases in 2019 which would put the main rate roughly at levels that policy makers see as neither boosting nor restraining the economy.

There was little market reaction to the outcome of the meeting.  At the close the NASDAQ was off about 0.80% while the Dow was unchanged.  Treasuries were also relatively unchanged but crude entered into a bear market, defined as dropping more than 20% in less than 30 days.  One month ago oil was destined to rise to $100 barrel from $75 and 30 days later closing around $60/barrel.

The reason for the decline is record production from most oil producers to increase inventories ahead of the Iranian sanctions.  President Trump was openly critical towards Saudi Arabia to increase production utilizing all its spare capacity to stem the rise in prices.  Saudi Arabia complied.  OPEC is now discussing production cuts at its upcoming meeting.

As noted, at current production levels, there is no spare global capacity an environment itself that is inherently bullish.

What will happen today?

Last night the foreign markets were down.   London was down 0.94%, Paris down 0.93% and Frankfurt down 0.55%.  China was down 1.39%, Japan down 1.05%  and Hang Sang down 2.39%.

The Dow should open significantly lower on interest rate concerns, trade fears and political haranguing.   The 10-year is up 8/32 to yield 3.21%.

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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.