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Equities fluctuated with the S & P hovering around a one month low amid data that bolstered the argument for higher borrowing cost, while remarks from FRB Chair Yellen signaled the central bank will remain deliberate in rising rates.

Commenting further about Yellen, the Chair started there are “plausible ways” that running the economy hot for a while could fix some of the damage caused to growth during the recession, indicating a willingness to only lift rates slowly even as inflation reaches or surpasses it target.

Some could interpret the above remarks as dovish but are they?  Interest sensitive ideas have come under considerable pressure during the past two weeks as the markets fear the Fed is falling behind the proverbial curve as inflationary expectations are rising, partially the result of crude.

Several weeks ago I referenced data provided by Bloomberg that it would take about a 45% decline in utilities to return to its average dividend yield.  I am not suggesting that this will occur but only making an observation.  Utilities are now down about 7% in 10 days and have posted the steepest short term decline since the implosion of Enron.  Utilities—or a favorite for alternative income investors—are off almost 10% from their July apex.

Earning season accelerates this week.  As previously noted expectations are very low with some already pronouncing the current season a complete disappointment.  I do not agree with this assessment but will write there are wide ranging implications of revenues growing greater than profits, the first time in many years.

Will this trend continue and if so how will it be interpreted?

The economic calendar is comprised of several manufacturing and inflation statistics as well as housing data.  Also released is the Beige Book or the statistical compilation utilized at the upcoming Fed meeting.

Last night the foreign markets were down.  London was down 0.62%, Paris down 0.25%, and Frankfurt down 0.33%.  China was down 0.74%,  Japan up 0.26% and Hang Sang down 0.85%.

The Dow should open flat ahead of a large increase in earnings reports.  The 10-year is up 3/32 to yield 1.79%.

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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.