Change Is The Only Constant

By: Kent Engelke | Capitol Securities

US equities retraced Monday’s light volume advance, an advance I believe was the result of algorithmic or technology based trading. The reason for yesterday’s decline… a mega-sized financial missed profit expectation, a surprise call for an election in Britain to further strengthen Brexit, France’s election on Sunday where the populist and nationalist Le Penn is expected to be one of the two victors leading into the final voting in May and North Korea.

Treasuries continued to rally and are now around mid-November levels.

As written last week, the entire “Trump Trade” has been reversed with mega-capitalized growth issues out-performing. Value and the small caps are performing poorly as the immediate chances of Trump’s pro-growth agenda being passed are slim.

About two months ago, I commented that change will not occur immediately and any type of delay would be met with selling.

I believe the economy/the markets are at a major inflection point. An appropriate response would be no duh! Economic nationalism is gaining further momentum. Brinkmanship and saber rattling is at levels not experienced in almost 30 years.

The Financial Times quoting Bank of America/Merrill Lynch states interest rates are at 5,000 year lows. Moreover, BAML writes fiscal stimulus in the G-7 countries is at a 70-year low, further stating stock valuations are lofty but bank valuations are at 75-year lows, a huge disconnect. The amount of wealth concentrated in a handful of names is exponential.

But a transition to what? First quarter growth is now expected to be under a 1.5% handle, the result of the lack of pro-growth initiatives such as tax and regulatory reform. I believe such is already reflected in the small and value companies for such are the most sensitive to anemic domestic growth.

Most are extrapolating the last eight years, the last 25 years into perpetuity. The world is different today than yesterday. I reiterate because of hope lost in the global administrative state, economic nationalism will continue to evolve into the dominant economic philosophy and the domestic issues, rather than the global leviathans, will consistently outperform. Growth will exceed expectations as part of Trump’s agenda becomes legislated.

Radical thought? Maybe not, if change is the only constant.

Last night the foreign markets were mixed. London was down 0.24%, Paris was up 0.27% and Frankfurt was up 0.19%. China was down 0.81%, Japan was up 0.07% and Hang Sang was down 0.41%.

The Dow should open moderately higher as European data was stronger than expected. The 10-year is off 11/32 to yield 2.21%.


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