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Stocks Led by a 1.2% Gain in the Russell 2000 Rebounded from Their Steepest Selloff Since 2011 as Over $744 Billion was Erased from US Equities Since October 8.

Stocks led by a 1.2% gain in the Russell 2000 rebounded from their steepest selloff since 2011 as over $744 billion was erased from US equities since October 8.  This is now the third consecutive day the small caps have outperformed their large capitalized brethren.

Many times I have opined in the days immediately before and after a midterm election, the issues that have been crushed the most rebound the strongest.  As widely known, the Russell 2000 was down almost 14% from its early July peak and many are perhaps realizing the selling was overdone.

Three days don’t make a trend, however the activity is encouraging.

Perhaps the most interesting observation of yesterday’s trading was the activity in the energy issues.  Oil fell again registering its biggest one day drop in over two years, down about 4.7% and over 23% from its June peak.  Depending upon the index utilized, energy equity indices were down anywhere between 0.5% and 1.2%.  The group has lost over 22% from its June apex.

Ouch!  This decimation is worse than the small caps.  Will valuations soon be supporting this beleaguered sector?

Earnings season is heating up.  At this juncture analysts are expecting S & P 500 profits to rise by 4.8% and sales gaining 4.2%.  I think for a myriad of reasons profits are to exceed expectations for the gazillionith quarter.  But what about revenues?

As I have opined several times, revenues must increase to maintain profit growth for increasing productivity from today’s level is equivalent to obtaining blood from a turnip.  Revenue gains will be instrumental in determining the third quarter growth rate and forward momentum.

Today is a busy earnings and data day.  Several high profile companies are posting results.  Retail sales, the PPI, Business Inventories, and the Beige Book or the statistical compilation of economic activity utilized at the upcoming Fed meeting, are all released.

Last night the foreign markets were mixed.  London was down 1.26%, Paris down 1.45% and Frankfurt down 1.22%.  Japan was up 0.92% and Hang Sang up 0.40%.

The Dow should open significantly lower on tax inversion M & A uncertainty and global growth concerns.  The 10-year is up 10/32 to yield 2.16%.


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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.