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In my view the averages are vastly over bought predicated upon speculation of a roll back of some onerous regulation—more specifically Dodd Frank which has crushed capital formation for the smaller companies, capital which is the lifeblood of capitalism and growth—and greater infrastructure spending.

Currently only comments have been made with no concrete proposals much less policy.  There is a lag time between words and policy, which suggests the markets have fallen prone to the proverbial “buy on rumor and sell on fact” scenario.

While I am championing the above possible policy changes, I think the expectations and speculation have risen too far and fast.

And then there are interest rates.  FRB Yellen strongly inferred that the inevitable December rate hike is “not one and done.”  In my view such an environment has not been discounted.

I think the averages will be choppy to down for the next several weeks with tax loss selling becoming a driving narratives.  I do believe however, the small caps and value issues will continue to outperform for a myriad of well-known reasons including lack of ownership and valuation.

And then there is Italy.  As noted last week, December 4 is the Italian referendum on expanding the power of the Prime Minister.  As with Brexit and the election, polls are close, with the prime minister vowing to resign if he loses.  As was the case in Brexit and the US, the populists are surging in power, believing today’s multipolority/globalism has benefited only a few.

If the populists are victorious, the odds of Italexit rise exponentially.  In my view such has not been remotely discussed much less discounted.

Commenting upon possible market activity this week, if history is of any guide, the markets may be lower today and tomorrow with some strength returning Wednesday in anticipation of the four day Thanksgiving holiday.

Markets will be open Friday for an abbreviated session but trading is expected to be subdued.

Last night the foreign markets were up.  London was up 0.45%, Paris up 0.51% and Frankfurt up 0.29%.  China was up 0.77%, Japan up 0.77%and Hang Sang up 0.06%.

The Dow should open nominally higher as crude is up on OPEC optimism.  The 10-year is up 10/32 to yield 2.32%.

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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.