Publishing Note: I have family visiting through Tuesday of next week. Thus, I will publish my "Daily State" report as time (and sleep levels) permit.
Good morning. I'm not exactly sure why network executives think they need to have bottle-blond former models or actresses with foreign accents reading teleprompters on the market channels these days. To be honest, I don't know of a single professional investor that tunes into a particular station to watch the "talent." And then when the usually less-than market savvy anchor goes off the reservation every once and a while and tries to provide meaningful insight, the result can be rather comical.
For example, as the market was closing yesterday afternoon, the director of one of the prominent business channels cut to an anchor for what was billed as some important insight (yes, they even "teased" the upcoming commentary). I assumed there was breaking news on IBM (IBM), American Express (AXP), or eBay (EBAY) so I turned the sound back on. But instead of important data on the state of the earnings season, our anchor who will remain nameless, informed viewers in no uncertain terms that, "The market is rallying for the wrong reasons."
I bring this up for two reasons. First, I got a giggle out of a news anchor telling me that the market was just plain wrong. And second, when I got done snickering, IM'ing, and texting what I had just witnessed, I realized that a great many viewers might just agree with what she had said. You see, there seems to be this perception among individual investors that the market must act a certain way in order to make sense. So, with stocks going up for the second day in a row in the face of the Fed Chairman suggesting that things were going to stay crummy for a while - and maybe even crummy enough for the FOMC to take action again - I'm guessing that a fair amount of people might actually agree with the uber-blonde commentator.
To her credit, it is true that the TV personality in question was talking about the idea that the market was rallying on the hope for more QE from the Fed. But the problem is that she and her cohorts went on to discuss whether or not the Fed would, could, or even should embark on another round of bond buying. The crew yammered on about the idea that QE may not have a meaningful impact on the economy or the unemployment rate and generally surmised that the plan wasn't likely to work. Thus, logic dictated that the market should (always a key word in this game) not be rallying.
The point however, is the market isn't rallying because traders think that more QE is going to fix the economy. Stocks are not being bought because another round of bond buying is the right thing to do or even because investors think that the Fed targeting asset prices is the best way to impact the consumers' psyche. No, it's not about "the reason." It's not about the "right decision"... It's about "the trade."
As I've been saying, IF (note the use of all capitals) the Fed decides to launch another round of QE, every trader on the planet (including yours truly) knows that its "risk on, baby." As I've written a time or three in the last couple of weeks, everybody knows that if Ben Bernanke pulls the trigger and starts buying more bonds, stocks go up, emerging markets go up, commodities go up, junk bonds go up, etc, etc. And given that Mr. Bernanke made it perfectly clear that his cavalry would ride if needed, traders don't want to miss out.
What I'm saying is that regardless of whether or not QE is expected to work, stocks will go up all the same. Why? Because this is how the game is played. Since the world revolves around algorithms these days, everything boils down to an if-then statement. And the bottom line is traders and their computers know what to do "if" QE is triggered.
So, the question of the day isn't really about the reason stocks are going up. It's really about whether or not QE is going to happen. And for the past two sessions, it's been about positioning accounts for the next risk-on trade. Our normal morning report schedule will resume on Tuesday.
Turning to this morning ... Despite a weak bond auction in Spain, gains in overseas markets have pushed the U.S. futures higher in the early going in front of a bevy of economic and earnings reports.
On the Economic front ... We'll get Weekly Jobless Claims before the bell, Existing Home Sales, Bloomberg Consumer Comfort, Philly Fed and LEI reports between 9:00 am and 10:00 am eastern.
- Major Foreign Markets:
- Australia: +0.55%
- Shanghai: +0.73%
- Hong Kong: +1.66%
- Japan: +0.79%
- France: +0.77%
- Germany: +0.99%
- Italy: +0.35%
- Spain: +0.77%
- London: +0.39%
- Crude Oil Futures: +$1.25 to $91.12
- Gold: +$17.60 to $1588.40
- Dollar: higher against the yen, lower vs. euro, and pound
- 10-Year Bond Yield: Currently trading at 1.509%
- Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +6.07
- Dow Jones Industrial Average: +63
- NASDAQ Composite: +17.38