Advisor Login Contact Us


Welcome to September and historically the weakest month for equities.  I will skip the reasons but will instead concentrate upon today’s prevailing narrative.

As noted earlier, many of the bulge bracket firms are forecasting a decline of 5% to 20% in the coming weeks.  Their rationale…lack of volatility, monetary policy, earnings and the election.  In other words, the historical factors facing the markets.

As noted in prior remarks, I think today’s risks are exacerbated because of the proliferation of ETFs and the total domination of the markets by cross correlated technology based trading.  Such trading constitutes about 89% of the NYSE volume according to the NYSE.

Simplistically speaking everyone owns the same 10 securities and when selling commences because of higher interest rates—a primary variable of most valuation models—all hell can potentially break out.

I believe most do not have any idea about current risk levels in the equity markets because of the above environment and the bulge bracket firms are attempting to forewarn all.

And then there is the debt market, more specifically the sovereign debt market.  Globally there is over $11 trillion of negative nominal yielding sovereign debt and total of $18 trillion of negative real yields.

August was the worst month for the Barclays US Treasury Index since June 2015.  The 10-year Treasury rose to a 1.58% yield from 1.45% registered on July 29.  What happens if yields rise to the Federal Reserve’s year end Central Tendency of 3.0%?   Perhaps the only words to write is that it will be really ugly.  I cynically write is the 10-year Treasury the risk free benchmark??

Trading was again quiet yesterday.  Volume was anemic.   Will most today do nothing ahead of tomorrow’s pivotal BLS employment report?

A closing thought.  If markets do decline 5%-20%, this would be the most forecasted drop in history.

Last night the foreign markets were up.  London was up 0.13%, Paris up 1.08% and Frankfurt up 0.52%.  China was down 0.76%, Japan up 0.23%and Hang Sang up 0.81%.

The Dow should open nominally higher amid signs of global growth.   The 10-year is off 4/32 to yield 1.60%.

Return To Index Page
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.