Manufacturing Numbers Support Stock Prices

by: Wyatt Investment Research

We're in the home stretch. Mid-term electiontoday s are . And then we get the Fed's announcement on a new round of quantitative easing on Wednesday at 2:15 ET.

If you've never watched the market trade ride after a Fed announcement, it can be spectacularly volatile. And I would expect this Wednesday's post-statement trading to be especially volatile. A 100-point swing or two on the Dow Industrials wouldn't surprise me.

Against the backdrop of the Fed and the elections, we have improving economic data and another solid earnings season.

The ISM Manufacturing Index expanded to 56.9 from 54.4 last month. Readings above 50 indicate growth. The chairman of the ISM survey said, “Manufacturing continues to outpace the rest of the economy...manufacturing will continue fairly strong to finish out the year...”

It's unlikely this positive data will have any impact on what the Fed decides to do. But it should be supportive of stock prices after the initial reaction to the Fed works its way through stock prices.

There seems to be a large number of strategist-types calling the Fed's action a "sell the news" event, regardless of what is actually said. But it seems to me that stocks have been behaving in a pretty rational way ahead of the announcement.

Stocks have been basically treading water for two weeks. We could look at this action as a consolidation period that will lead to an upside move in the Fed's wake.

Oil was a big winner on yesterday's manufacturing news. In addition to expansion in the U.S. manufacturing sector, China's manufacturing sector expanded at the fastest rate in 6 months.

Oil prices were up around $2 a barrel.

It's worth repeating: oil prices are high now, with a still-struggling U.S. economy and a high unemployment rate. Can there be any doubt that oil could easily hit triple-digits once employment starts to improve?

Investors simply must have oil stocks in their portfolios. U.S. or Canadian based exploration & production companies (E&Ps) are the best options.

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