Stocks Surge on Hopes Of More QE



Allow us to be clear, the market is strong. The latest pullback was shallow in both size (% decline) and scope (weeks, not months). The primary catalyst behind this 4.5 year bull market remains easy money from global central banks. We just found out that the easy money is here to stay (for now).  Eventually the music will end, but as a market practitioner, our only job is to align ourselves with what is actually happening, not what someone thinks will happen. That said weakness should be bought until further notice. Finally, a few steps have been taken by Congress to help prevent a government shutdown. That debate will be interesting as both sides of the aisle prepare to embarrass themselves…again.

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MONDAY-WEDNESDAY’S ACTION: Stocks Surge On Hopes of More QE

Stocks rallied sharply on Monday after Larry Summers dropped out of the race to replace Bernanke. The underlying notion which helped stocks rally was that Janet Yellen is now seen as the front runner and she is in favor of more QE, not less. Separately, options trading was temporarily suspended after a data glitch was reported at one of the exchanges. Shares of Apple (AAPL) were smacked after the company broke tradition and failed to report pre-order figures for their new products. Economic data was not ideal. New York State’s manufacturing index unexpectedly slowed in September. The New York Fed’s “Empire State” index fell to 6.29 from 8.24 in August, missing the 9.20 forecast. A separate report showed that industrial production matched estimates and rose 0.4% in August after being flat in July.

Stocks edged higher on Tuesday after the latest round of economic data was announced. Home builder sentiment remained unchanged at 58 in September which missed estimates for 59. The consumer price index (CPI) rose by 0.1% in August which missed estimates for a gain of 0.2%. In other news, the Fed started their much anticipated 2-day meeting.
Stocks soared on Wednesday after the Federal Reserve surprised the Street when they decided not to taper QE. Most people on the Street were expecting the Fed to taper between 5-15B but that didn’t happen. Instead, they decided to keep the pedal to the metal and stocks soared on the news. In fact, twenty minutes before the Fed meeting, the White House “leaked” news that Yellen was indeed the front runner to replace Bernanke in January. Markets rallied on the news, then soared after the Fed meeting. Yellen is believed to be a dove which means she wants more QE, not less. So many now believe this was Bernanke indirectly handing off power to Yellen.


Stocks were quiet on Thursday as investors digested Wednesday’s strong rally. Economic data was mostly positive. The Philly Fed index jumped to 22.3 which was the highest level in over two years and easily beat expectations for a reading of 10. The National Association of Realtors said existing home sales surged 1.7% to a 6.5 year high of 5.48M units, easily beating estimates for 5.25M. Weekly jobless claims rose by 15k to 309k but the reading was distorted as two states were still working through a backlog of unprocessed claims from last week. Finally, leading economic indicators topped estimates and rose nicely in August. Stocks fell on Friday as the enthusiasm waned regarding valuations and future QE.

MARKET OUTLOOK: Bulls Are In Control

The market looks very strong as this bull market is alive and well. The latest pullback was short in both size and scope which bodes well for this market. Please note that our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.


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