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With So Much in The Markets Already Discounted, What Will September Bring?

Many times I have commented about the velocity of change and to expect the unexpected.  Equities had their worst month since May 2012 as the most owned momentum stocks imploded sending some issues down almost 30% in a few weeks.

And then there was oil. Oil is now up 29% or $11 from its close eight days ago, the vast majority of the gains occurring since last Thursday, capping the biggest three day gain since August 1990 when Iraq invaded Kuwait.

In fact a late afternoon newswire headline read “Oil is up 29% entering a new bull market.”  To remind all, crude has fallen from over $60 barrel on June 30 to under $38 on August 24, a 37% implosion.

What will happen in September?  Historically September is the worst month for equities for two different reasons.  First the inherent financial strains given the leverage of most retailers because of inventory accumulation before the holiday season.  Second, there is capitulation from overly optimistic early year revenue and profit assumptions.

Has such already been discounted?  I have opined several times of the possibility of a “market melt up” in the lesser owned names at the expense of the mega capitalized issues.  Yesterday the typical stock that has little overseas exposure greatly outperformed.

Most are numb by the events of the last 30 days where the velocity of change has impacted even the most seasoned investors.   A rotation as suggested above is not beyond the realm of possibilities.

Today construction spending and the ISM are posted as are auto sales.  How will this data be interpreted defined as will it bolster the case of change in monetary policy in mid-September.  As I have commented many times does 0.25% really make that much of an economic difference?  I hope not for if it does the economy is on weaker footings than most would think.

Last night the foreign markets were down.  London was down 2.14%, Paris down 1.91% and Frankfurt down 2.40%.  Japan was down 3.84% and Hang Sang down 2.24%.

The Dow should open considerably lower following a selloff in Chinese and global shares, the result of a three year low in a Chinese manufacturing gauge.  Oil is off about $1 following the strongest three day advance since the Iraqi invasion of Kuwait and the onset of Desert Storm.   The 10-year is up 16/32 to yield 2.17%.

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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.