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Talk About the Return of Volatility!

Friday the Dow fell over 275 points on stronger than expected economic data that challenged monetary policy assumptions.  Monday there was a 135 point rebound followed by Tuesday’s 335 point drubbing.  Yesterday the Dow rose over 250 points on data that was weaker than expected, data that has again challenged monetary assumptions.

Talk about the return of volatility!  Perhaps the only concrete statement to make is conviction levels are absent.  I also believe it is safe to write trading has been coopted by the machines.

Commenting upon yesterday’s advance, equities applied the unexpected drop in retail sales which bolstered the case for keeping interest rates low.  The dollar fell from a 12 year high against the euro.

All must remember that approximately 48% of the S & P 500 revenues and 52% of its profits are derived from trade.  A higher dollar makes US products more expensive abroad.  There were ample examples of fourth quarter earnings shortfalls because of a stronger greenback.

As stated above, retail sales unexpectedly fell in February for a third consecutive month.  Poor winter weather is blamed.  I do think it is noteworthy that sales were up 1.7% from the year earlier.

What will happen today?  The PPI and University of Michigan Sentiment survey is released.

Last night the foreign markets were mixed.  London was down 0.11%, Paris down 0.19% and Frankfurt down 0.35%.  Japan was up 1.39% and Hang Sang up 0.11%.

The Dow should open little changed. The Fed commences a two day meeting next week and most know are convinced that bad is news is good news and good news bad.  The 10-year is off 2/32 to yield.2,.12%.

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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.