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Possible emerging strength in the US economy?

Several times I have commented about possible emerging strength in the US economy. Fed Chair Yellen made similar remarks yesterday stating “I see the US economy is performing well…domestic spending has been growing at a solid pace.” Yellen further remarked the improving economy “has set the stage for a December interest rate increase” if reports continue to show current improvement and strength.
One month ago, most including me, abandoned the idea of a change in monetary policy until March 2016.
Equities and commodities sold off nominally on the news while the dollar rallied.
Many times I have opined the markets have been “spoon fed” by the Federal Reserve, believing that this august body is both omnipotent and omniscient. The Fed has changed its MO telling all that monetary policy is dependent upon the data and how this data is interpreted.
Unfortunately interpretation is subject to confirmation bias and preconceived expectations.
Speaking of such, many times I have commented about the outsized influence ETFs and HFTs are having upon the markets further stating if passive investing is the pathway to riches all would be infamously wealthy.
What happens to valuations to the most own large cap growth stocks that has led the markets higher when there is a change in monetary policy? According to JP Morgan large cap growth is up 7% while most other sectors are down 5% to 35%, the largest bifurcation in history. Large cap growth is dominated by ETFs and HFT.
I reiterate I think today may be analogous to 2002-05 when the “most owned large cap growth issues” grossly underperformed and the typical company outperformed. In many regards the environment is similar.
What will happen today? Will activity be subdued ahead of tomorrow’s BLS labor report? Speaking of which the ADP Private Sector Employment survey largely matched expectations and had no major impact upon the markets. The ISM Non-manufacturing index which also exceeded expectations was largely ignored.
Last night the foreign markets were mixed. London was down 0.52%, Paris up 0.96%, and Frankfurt up 0.89%. China was up 1.83%, Japan up 1.0% and Hang Sang down 0.01%
The Dow should open moderately higher on economic optimism. The market is now suggesting a 60% chance the central bank will hike rates in December following comments made by other high ranking fed officials similar to that of the Chairwoman. The 10-year is unchanged at a 2.21% 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.