ULTIMATLEY IT WILL BE ABOUT EARNINGS AND INTREST RATES

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By: Kent Engelke | Capitol Securities

Healthcare has become the litmus test as to whether Trump could legislate his agenda. Because of technology based trading where variables and responses to these variables are preprogrammed, market reaction may be greater than it otherwise should.

Unfortunately this is the environment that has evolved; an environment that I believe is on the cusp of change given the breakdown of cross correlated trading models that have worked almost flawlessly for almost 10-12 years.

Some believe these models could/would evolve into SkyNet, the all-powerful computer system that John Connor had to destroy to save the world.

I do not share this view for the simplistic reason that all trading models ultimately fail via their own demise. The trade becomes “overcrowded” with all replicating the same strategy. Change is the only constant and over time markets will respond accordingly to the macroeconomic and geopolitical environment as well as earnings and interest rates, the appropriate driver of equity and bond prices.

Commenting about yesterday’s market action, all markets were relatively unchanged even as the healthcare vote was delayed for at least a day.

Last night the foreign markets were mixed. London was down 0.10%, Paris was down 0.41% and Frankfurt was down 0.17%. China was up 0.64%, Japan was up 0.93% and Hang Sang was up 0.13%.

The Dow should open nervously quiet ahead of the potential healthcare vote. The 10-year is unchanged at 2.42%.

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