Friends
Well, are you ready for the coming week? It should be very eventful. On Tuesday, of course, we have mid-term elections. On Wednesday, we get a clue as to what the Federal Reserve intends to do with regard to “Quantitative Easing” and then on Friday, we get the monthly unemployment report. That is a lot of “stuff” for the markets to react to. For “big picture” thinkers, it will be a lot to chew on. The political landscape may or may not be changed, the Fed’s desperate attempt to inflate the economy may begin another phase, and hanging over all of that just may be the creation (or lack thereof) of jobs in the US.
Many traders believe that the move to the upside in stocks from September through last week was investors anticipating a political change, which does seem likely in some form. Have they already baked in all of the good news? Well, this week’s action indicates that traders thought it might be a good idea to sell a few things before next week’s fireworks. Why wait to “sell on the news”, when you can sell a little before all the news hits? This resulted in a sloppy week for stocks with a downward bias. The S&P was holding around the 1180 level at the close on Thursday, and we want to see if the 1171 level can hold in the near term. The Dow is still above 11,000 but down a couple hundred points from its level at the beginning of the week.
The 3rd quarter GDP number, up 2%, was “ok” and about what traders expected, but probably doesn’t change the thought process of the Federal Reserve. October, often a dicey month, looks to end up with a nice overall gain in the market averages, which makes the reaction to next week’s events all the more interesting. As market observers, we will look to see if, indeed, market participants will sell the election news, having already anticipated the incremental political change, or will they become emboldened by the results and begin what could turn out to be a year-end rally. We will watch to see how the Fed’s actions affect the dollar and bonds. Will investors be more concerned that the Fed will not succeed in inflating the economy, therefore leading to continuous low-interest rates and real concern about the Fed’s viability? Or on the other hand, will investors be “afraid” that the Fed’s action will actually work, thus leading to higher inflation (that they may not be able to control) and lower bond prices?
So much to watch for next week. We should, by the end of the week, get a good feel for where stocks and bonds are heading for the remainder of the year. The political landscape will become more of a known, instead of the current unknown. The Fed will tips its hand as to what QE II actually represents, and with Friday’s job number, we will see if any jobs at all are being created. Oh, and by the way, earnings season has again confirmed that despite all the macroeconomic hand wringing, Corporate America continues to deliver very good results in a very difficult environment.
Keep your hands inside the ride and buckle up for next week’s roller coaster. We’ll be here to monitor it all for you and take advantage of whatever opportunities arise.
Have a great weekend everyone.
