ARE THE MARKETS AT A MAJOR INFLECTION POINT?

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By: Kent Engelke | Capitol Securities

It “feels” as though all markets are at a major inflection point, a “feeling” backed up by several technical indicators. Equities are trading at their 50 day moving averages. The 10-year Treasury is hovering around its lowest yield for 2017. The “Trump Trade” has been reversed with mega capitalized growth issues outperforming most other asset classes.

In most regards, algorithmic or technology based trading is again dominating the markets for the lone exception that cross correlated trade has broken down. According to the SEC, 90% of all equity trades are executed by either algorithmic or ETF programmed trading. Ninety-five percent of all Treasuries trades are done electronically with “great influence” exerted by algorithms.

In other words, by definition there is a total lack of geopolitical and macroeconomic thought of investment decisions with all decisions made upon the numerous variables imputed into the computer based trading programs/systems.

My introductory sentence read: “it feels as though all markets are at a major inflection point.” I think the economy is on the verge of a major inflection point that may dramatically affect what sectors will outperform.

There are several major points that cannot be debated. Globalism and multi-polarity have lost considerable geopolitical backing, replaced by economic nationalism. President Trump is the antithesis of the Establishment, despised and feared by many on both sides of the proverbial aisle.

Geopolitical tensions are rising and in many regards are at Cold War heights. The Middle East has imploded.

Thirty-two years ago, when I entered the brokerage business, the Dow Jones among others was comprised of Woolworths, GM, Bethlehem Steel, US Steel, Eastman Kodak, Union Carbide, Owens Illinois, Inco, Westinghouse, Texaco and Sears. All of which for the exception of Sears, UK and US Steel, have filed for bankruptcy. The three that did not file, have flirted or are flirting with reorganization.

Wow! Talk about change and the complete rewrite of American business.

Globalism and multi-polarity became the major economic and political catalysts following the demise of the Soviet Union and the end of the Cold War in the early 1990s… a multi-polarity that facilitated the bankruptcy of almost one third of 1985 members of the Dow Jones Industrial Average.

If a tectonic change has occurred again, what members of the 2017 Dow Jones will have filed for bankruptcy by 2049? How will today’s Establishment be upended?

Commenting on yesterday’s market action, equities were flat, albeit oil did rally another 1.5% on expectations that stores will be drawn down further. The 10-year was off 8/32.

Will the markets today be impacted by the release of the March 15 FOMC Minutes? Also posted is the ADP Private Employment Survey.

Last night the foreign markets were up. London was up 0.10%, Paris was up 0.04% and Frankfurt was down 0.47%. China was up 1.48%, Japan was up 0.27% and Hang Sang was up 0.57%.

The Dow should open quietly lower ahead of several key data points, the Fed Minutes and a meeting between Trump and China’s Xi Jinping. Oil is up another 1% on inventory drawdown. The 10-year is unchanged at 2.36%.

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