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The Earning Season is Rapidly Accelerating.

Led by technologies US equities advanced as China lowered the amount of cash lenders must set aside as reserves by the most since 2008 to support the economy amid the slowest expansion in six years.  The Euro halted its best winning streak in a year as tensions mounted over Greece’s debt repayments.  Oil gained.

I have commented several times the global markets are generally ignoring Greece. If today’s headlines were posted last year, all markets would be deep in the red.  Is there a false sense of complacency believing the ECB’s massive QE program will overcome all issues?

There have been some analogies back to the attitude prior the Lehman bankruptcy, but I think these analogies are perhaps not valid.  Seven years ago all were arguing about “moral hazard” and the financial system was all experiencing massive stress and few had a clue about credit default swaps (CDS).  Today I believe the environment is the inverse.

About a year ago I was commenting the proverbial inmates have over taken the asylum in reference to Greek’s demands.  Today it appears the inmates have been re incarcerated, an incarceration that the market is viewing as positive.

I am not suggesting tense moments may not occur which may impact the markets, I am suggesting the magnitude, duration and reaction to these events may pale as compared to episodes past.

Commenting upon oil, crude opened moderately lower only to close about 1% higher.  Last week oil climbed the most in a week in about five years. The market narrative was all about a lowered rig counts that should reduce supply.  While I do think there is considerable merit to this view, I believe the day end rally was the result of reports that an American aircraft carrier was sent to the Gulf and is prepared to intercept any Iranian vessels carrying weapons to Yemen.

As most know, Iran has adamantly denied supplying arms to Yemini fighters.

Is this yet another step up in Middle Eastern tensions?  I think yes.

What will happen today?  The earning season is rapidly accelerating.  Released results have generally exceeded dumbed down expectations with many reporting the strength of the dollar have hindered their results.  Analysts are expecting profits to decline about 4.3% for the period versus last week’s estimate of 5.6% drop.  Of the companies that have reported, 84% beat expectations and 51% topped sales estimates.

Last night the foreign markets were mixed.  London was down 0.12%, Paris down 0.10% and Frankfurt up 0.38%.  Japan was up 1.40%and Hang Sang up 2.79%.

The Dow should open nominally higher as earnings are generally exceeding expectations.   The 10-year is up 4/32 to yield 1.88%.  Oil is flat.

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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.