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What gives?  Retail sales climbed in April by the most in 13 months, abruptly ending an early year letdown in spending that cause a first quarter down shift in the economy.  The gains were broad based.

A sentiment survey form the University Of Michigan helps explain the resurgence in sales.  Confidence surged in early May to an almost one year high as households grew the most upbeat about their inflation adjusted incomes than at any time in a decade.  Such wherewithal to spend means the economy has a tailwind that will probably lead to faster growth in the second quarter.

To write the incredibly obvious, today’s data is a direct contradiction of recent earnings reports and narrative from a myriad of retailers.

Because of the above reports, the dollar strengthened, oil and equities fell as such reignited speculation the Federal Reserve may lift interest rates as early as June, a point validated by the yield curve between the two year and ten year treasury which is now at the narrowest point since 2007.

Because of the above, the S & P has now dropped for three consecutive weeks, the longest losing streak in four months, closing Friday at a month low.

What will the data suggest this week?  Will the narrative change radically to one of growth versus slowdown?  The economic calendar is robust as various manufacturing and housing statistics released as is an inflation index and the Minutes from the April Fed meeting.

Last night the foreign markets were mixed.  London was down 0.40%, Paris down 0.84% and Frankfurt up 0.92%.  China was up 0.84%, Japan up 0.33% and Hang Sang up 0.84%.

The Dow should open flat as crude is up about 2%.  Goldman commented that the oil market has switched to a deficit given supply disruptions in Nigeria and Venezuela, and greater than expected output cuts in the US and China.  The 10-year is off 5/32 to yield 1.72%.

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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.