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Forget GDP, You Know What Happens On Friday

This morning the Commerce Department reported an in line gross domestic product(NYSEMKT:GDP) report. Economists were expecting the report to come in at 2.1% GDP and the actual number reported was 2.0%. Therefore, this was a perfect number because it will keep the quantitative easing part two alive. As soon as the GDP number was announced the U.S. Dollar Index declined sharply and this helped to inflate the stock index futures off the lows. Remember every trade is a dollar trade now. When the U.S. Dollar Index declines the stock market rallies and inflates higher. The opposite is true when the U.S. Dollar Index catches a bid higher the stock market will usually deflate and trade lower.

Next week will be the important elections that already seem to be baked into the market. The Republicans are expected to sweep the House of Representatives and gain some seats in the Senate. This is likely to cause gridlock and hopefully cut the spending of the government. On Wednesday the Federal Reserve Bank will announce its quantitative easing program. This is the real wild card as many investors are expecting a $1 trillion buy program. However, one never knows how much they will actually do. In any case the stock market has at least $1 trillion dollars worth baked into the cake. We shall see what the actual amount is soon enough.

As for today this is a Friday. Rarely does the stock market really sell off sharply on a Friday. It is usually a flat day to slightly positive trading day. The powers that be do not want to panic the U.S. consumer who is likely to spend his money over the weekend. Remember that U.S. consumer spending accounts for 70.0 percent of the GDP in the United States. Therefore, if he or she sees the Dow Jones Industrial Average down sharply ahead of a weekend their spending plans are likely to change. If this inflation rally is going to work it will require the U.S. consumer to spend money once again.

Often the trading volume on a Friday declines sharply after the first two hours of the day. Therefore, while the stock market can decline early it will often float higher throughout the day and finish near the flat line by the closing bell.