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Stocks rose as the dollar weakened to the lowest level in almost a year on lowered expectations of higher interest rates.  Gold rallied and is now at the highest level since January 2015.  Oil fell after a 20% surge in April and 76% gain since mid-February.  Treasuries fell in price as manufacturing prices are suggesting a rise in inflationary pressures.

In many regards yesterday was not a typical trading day.  All know the correlation between oil and crude thus suggesting equities should have been lower.  Conversely all also know the correlation between the dollar and commodities….lower dollar higher commodity prices.  The dollar fell so did oil.

And then there were Treasuries.  A more benign interest rate forecast should have been Treasury positive.  It was not.

Yesterday’s equity leaders were primarily the value candidates, names that include energy and financials.

As noted yesterday, this could be a pivotal week regarding the nascent equity transition from momentum growth to value.  The lack of correlated trades is offering evidence the transition may be commencing given the breakdown of these will known trading relationships thus suggesting the influence of HFTs and perhaps ETFs may be waning.

Will the trend continue today?

Last night the foreign markets were down.   London was down 1.13%, Paris down 1.57% and Frankfurt down 1.70%.  China was up 1.85%, Japan down 3.11% and Hang Sang down 1.85%.

The Dow should open moderately lower on a large financial earnings disappointment.  Halfway through the profit season, 77% of companies have exceeded earnings forecasts while 57% exceeded revenue outlook.  For the quarter results are expected to decline about 8.2%.  The dollar is lower again today as is oil.  Gold is higher.   The 10-year is up 17/32 to yield 1.82%.

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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.