US stocks getting a boost late in the day after details from the most recent Fed meeting showed the central bank is more than ready to act to jump-start economic growth.
This reasoning isn’t anything new – the QE2 trade has been propping up the market arguably ever since Fed Chairman Bernanke’s Jackson Hole speech at the end of August. But as earnings season starts to ramp up, there’s concern that investor focus will shift toward companies’ quarterly results and outlooks, which may not have such a positive affect on stocks.
Miller Tabak’s Peter Boockvar dubs it the stock market’s “tug of war.” Essentially, the market is grappling with two key themes: sluggish economic growth and the Fed’s printing press.
“The Fed certainly has won the battle of asset prices since early September but will likely take a back seat until we refocus on it at the end of October,” he says. “Corporate America’s drive through 3Q and the outlook for 4Q will matter most and stocks I believe will consolidate at or below current levels during this precess.”
But don’t call Boockvar bearish just yet. He expects any consolidation from these levels to give way to a late October/early November rally due to the midterm elections and Fed action.
Dow Jones Industrial Average was recently up 31 to 11041 and S&P 500 up 6 to 1171, with both benchmarks trading at five-month highs. With stocks seemingly at overbought levels, Minyanville’s Todd Harrison offers his two cents on the situation.
“There’s an old adage that tapes that are overbought are sold on good (not great) news while markets that are oversold are bought on bad (but not horrid) news,” Harrison says. “Keep that in mind as earnings approach, and remember the asterisk that is the expectation of QE2 (which may well apply the same adage).”