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Was the first quarter—more specifically March—a harbinger of things to come?  Correlated moves—aka momentum trading—unwound to the lowest levels since 2012 and breadth, or the number of stocks advancing—came roaring back.

Nothing has been easy in 2016, a year which the S & P plunged over 10% in the first six weeks of trading, only to close the quarter virtually unchanged—the biggest turn around since 1933.

As stated above, momentum strategies came unglued as momentum traders’ focus on technology and healthcare companies,  grossly underperformed perhaps the result of large downward earnings revisions and massive over ownership.  Conversely, an index maintained by Goldman indicated the 50 least owned stocks have gained 5.3% this year.

Thirty days does not make a trend especially after a disastrous 25 months of massive underperformance for those not involved in momentum trading, it is encouraging for those who still believe the primary catalyst for higher share prices is geopolitical and macroeconomic analysis.

Commenting about yesterday’s trading; equities led by healthcare issues, primarily the result government clamp down on inversions ended moderately lower as selling accelerated during the final 30 minutes or trading.  The S & P500 was off about 1.0% while the Dow declined about 0.75%.  Oil closed about 2.0% higher on an inventory survey.  Yesterday’s 1% S & P decline ended the longest streak of “calmness”—defined as a 1% move in either direction—in 13 months.

The data was mixed.  However I thought it was significant the ISM Non-Manufacturing Index—an index that measures activity in about 90% of the economy–rose in March, the first increase in five months.  The sub-indices—index of new orders and business activity index—also rose by an unexpected amount.

Commenting about a job opening survey, the report offered good news with more workers finding positions and an increase in the number who felt confident to leave their jobs.  Layoff remained muted, corroborating weekly jobless claims that linger near the lowest in decades.

The dollar fell and gold advanced the most in about a week.  Gold had its best quarter since 1986—rising over 16%.

What will happen today?  How will the Minutes from March’s FOMC meeting be interpreted?

Last night the foreign markets were mixed.  London was up 0.57%, Paris up 0.22% and Frankfurt down 0.22%.  China was up 0.54%, Japan down 0.11% and Hang Sang up 0.15%.

The Dow should open nominally higher following the steepest losses in four weeks on a rebound in crude.  Oil is up for two reasons…Kuwait’s statement believing a production freeze will occur, a statement made yesterday morning, and inventory levels lower than furcated.  The 10-year is off 7/32 to yield 1.75%.

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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.