Shuffling through all of the “muck” of last week, investors found a “pony.” This took the collective form of better U.S. economic news, the central banks coordinated of U.S. dollar liquidity and another “plan to have a plan” with regards to the eurozone political and financial crisis.
Throw in some stats on a Santa Claus rally and you have a volatile yet powerful underpinning for a U.S. equity advance as investors looked for any excuse to break the “stock slough fatigue syndrome.”
Central Banks Coordination Was Not a Test: The massive coordination by the central banks this week wasn’t an exercise to test if the systems would work in time of crisis. It was a response to an existing crisis of a European bank failure.
Missing the Turn: The European Union Summit this week (Friday, December 9th) in Brussels will be the fifth attempt at forging a blueprint for rescuing the 17 nation euro area countries.
A More Perfect Union: The solution to this crisis may be the only one left on the table: forging an even closer integration of the euro currency countries requiring enforceable rules governing budgets with real "teeth" in punishing those who fail to comply.
This in turn would lead to the ECB greater support in the open markets for supporting the debt of sovereigns and their related banks.
Definition of Tangible Progress: Tangible progress would be hailed and the equity markets could continue their current upward bias. However, the tangible progress will open to interpretation as there will be no tangible documentation signaling this commitment for some time to come. March is a long time away.
Hope Springs Eternal: Odds are that the equity markets are looking for an excuse to go higher and that the bias towards the Dec. 9th meeting will be positive earlier this coming week. However, a less than satisfactory resolution will bring another round of pain to equity investors.
Remember, a bend in the road can be the end of the road if you fail to negotiate the turn.
Disclosure: I am long DXD.