By: Kent Engelke | Capitol Securities

Many times I have commented about the narrowness of the markets. Yesterday, the Irrelevant Investor commented about the capitalization of Amazon. According to this website, Amazon reached $70 billion in market capitalization in 2011.

In 2017, Amazon was up 56% and is up 12.5% YTD. In just 14 trading days in 2018, Amazon increased in capitalization by $70 billion and this rise is bigger than the total capitalization of Colgate, GM and Marriot combined and 83% of all companies in the S & P 500. Wow! Amazon has only earned $5 billion since its 1997 IPO. Wal-Mart earns over $5 billion a year.

Is this sustainable?

Many times I have commented about the tectonic change that is occurring. Globalism and interdependency is on life support. Yesterday, The Freedom House published its annual survey of the “Most Free Countries.” According to Freedom House, global freedom has been declining for the past 12 years. I rhetorically ask, was not globalism expected to increase global freedom?

Perhaps the most controversial aspect of this year’s survey is the rate of decline of freedom in the US slowed during 2017. The data clearly indicates the Obama Administration continued to defend democratic ideals in its foreign policy statements, but actions often fell short, reflecting a reduced estimation of the US’ ability to influence world events and of the American public’s willingness to back such office.

President Trump’s “American First” slogan was really the acknowledgement of a trend that commenced in 2007 where words now reflect American actions.

What does the above have to do with the markets? Everything. The mega-sized technology momentum growth issues have dominated the markets for the last four years, primarily the result of the surge of passive/ETF investing strategy. By definition, the big get bigger and the small smaller. A strong case can be made that the basic concept behind indexing is past performance is indicative of future performance.

I rhetorically ask what happens if the underlying dynamics change? For example, the geopolitical environment amplified by a rise in interest rates, the result of economic activity increasing at home instead at the low cost, autocratic nations? Will valuations be challenged?

Today a headline from Davos read, ‘Globalism a Dying Liberal Agenda Item.’ US Treasury demand is the greatest since 2009. Depending upon the benchmark, yields are at their highest level in many years, the result of stronger than expected domestic growth.

If globalism is dying and if interest rates do rise, will many view Amazon’s recent surge in a similar light as many other great unsupported gains? I think yes.

Last night, the foreign markets were down. London was down 0.48%, Paris was down 0.12% and Frankfurt was down 0.04%. China was up 0.37%, Japan was down 0.76% and Hang Sang was up 0.09%.

The Dow should open flat as the dollar is at a three-year low. Activity in the Eurozone further strengthened at the start of 2018, sending all yields including the 10-year higher to 2.65%.