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Stocks were Relatively Quiet as Declines in Small-Cap and Energy Shares Offset Stronger Than Expected Earnings.

Stocks were relatively quiet as declines in small-cap and energy shares offset stronger than expected earnings.  Oil fell to the lowest level in four years on signs that OPEC will not cut production.

Oil is again “testing” the psychologically important $75 area.  I must write during the past 30 days oil has traded between $76 and $81.  The majority of this $30 decline from $105/barrel occurred prior to October 15.  The point that I am attempting to make typically whenever a narrative becomes myopic, the majority of the move has already been made.

I am not suggesting oil will rally in the immediate future but rather stating the majority of the damage may have already been done and to now perhaps expect the unexpected.

It is generally regarded oil under $75 will severely impact the vast majority of those countries whose economy is primary oil exports.  If oil remains at current levels, will greater civil unrest occur in areas of the world, areas of the world which are at best volatile?

The OPEC meeting is November 27.  Will the outcome of this meeting change sentiment?

Speaking of oil, retail sales are announced today.  As written several times, the current drop in oil has transferred about 1.5% of global GDP from the oil producers to the oil consumer.  The US is the largest economy by the factor of three.  The US is also the largest consumer of oil.  Consumer sales are 70% of the economy.

Will sales surprise on the upside before this pivotal holiday shopping season?  Sales are expected to rise by 0.2% and up 0.4% ex autos and gas.

Last night the foreign markets were mixed.  London was down 0.30%,  Paris down 0.24% and Frankfurt down 0,43%.  Japan was up 0.56% and Hang Sang up 0.28%.

The Dow should open quiet ahead of retail sales and confidence data.   The 10-year is of 3/32 to yield 2.35%.

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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.