By: Kent Engelke | Capitol Securities

Declines in technology shares led a market reversal. Comments from an official at the White House reestablished the hard line stance towards China. Earlier in the day the S & P 500 was posting a 0.9% advance on remarks from the president suggesting a softening of positions. The S & P closed down about 0.86%.

As noted the other day, technology companies derive 59% of their sales from abroad, greatly eclipsing the percentage of sales from the next largest category — the industrials — at 38%, thus suggesting any change in policy may have a considerable impact.

Changing topics, oil further added to its gains closing at a 3 ½ year high of $72.50/barrel. Markets were spooked by the realization that there is little excess global spare capacity. As noted earlier, Saudi Arabia is the only country that has any significant excess capacity and once the planned increase in production commences, Saudi’s reserves will decline by 40%.

Bloomberg writes excess capacity will then be at an all-time low, thus suggesting little ability to respond to further disruptions.

For many years, a geopolitical premium was absent in crude believing supplies are infinite. Will the environment now radically change where a large geopolitical premium becomes embedded?

There was little attention focused upon rising forecasts of second quarter GDP growth. The Atlanta Fed just increased its estimate to 4.5%. Several other forecasters boosted views to 5%. The only time growth has topped 5% since 2003 was the third quarter of 2014 when the economy grew by 5.2%.

I believe a major factor why the economy did not achieve “escape momentum” four years ago was the result of the full implementation of Dodd Frank which made capital formation — the lifeblood of capitalism — extremely difficult.

As largely discussed, some of the provisions of Dodd Frank have been rolled back.

What will happen today?

Last night the foreign markets were down. London was down 0.21%, Paris was down 0.58% and Frankfurt was down 1.08%. China was down 0.93%, Japan was down 0.01% and Hang Sang was up 0.50%.

The Dow should open steady as all are attempting to grapple with America’s strategy towards Chinese trade and investment. Emerging markets had another miserable day, a sector class that could do no wrong up to three months ago. Crude is nominally higher. The 10-year is unchanged at 2.83%.