Stocks in the U.S. suffered only their second session of more the moderate selling in the month of August, but after testing the lows of last week a knee jerk bounce ensued, followed by a round of selling late in the day. The S&P 500 fell 0.8% and NASDAQ 1.05%. While the economic data for the day was mostly benign some worries that Spain would not seek a bailout (which would allow the ECB to buy their short term bonds) caused consternation. A decent retail spending report did little to impact stocks as the "George Costanza" market often looks at good news in a poor way since it means less chance of central bank intervention.
- A group of 18 retailers ranging from discounter Target to department-store chain Macy's reported August sales on Thursday that rose 6 percent — the industry's best performance since March — according to trade group International Council of Shopping Centers. At the same time, the government released numbers showing that Americans spent in July at the fastest clip in five months.
Although the S&P 500 technically undercut last week's low by 1 point it essentially retested it; however closing near the lows rather than somewhere in the middle of the range or better poses some questions go forward. That said, reaction to the speech by Ben Bernanke tomorrow morning will overshadow anything else in the near term. It appears there has been quite a bit of jawboning this week to lower expectations and instead focus on actions ECB head Draghi might take next week. The market seems to expect more of the "all options are on the table" talk from Bernanke tomorrow.
Apple fell today so invariably the NASDAQ fell; of course there are some days they diverge but most of the time they work in lockstep at this point.
Transports continue to show little life, and are approaching lows of the summer - not the type of action you'd see if "economic resurgence" was behind the summer rally.
Bonds have continued their oversold bounce - the widely watched ETF in the space (TLT) has reached its 50 day moving average from below - as bonds tend to move in inverse fashion from stocks, any continued rally in the bond market would most likely cause pressure for equities and other risk assets.
Speaking of "the Bernank", what is lost in the all the hubbub expecting a direct comment like "I will awash you in easing", the precursor to QE2 in 2010 was very similar to what was released in the last round of minutes. So traders expecting something even more explicit will be disappointed. However we can see why people are all riled up, as the WSJ Marketbeat blog shows returns pre and post Jackson Hole the past 2 years. Of course the last 2 years markets were down year to date going into "the Hole", whereas they are up this year - so there is no reason we can expect the same thing to happen post conference.
What is the general consensus or the market's view on whether or not Q3E will actually happen?
The market's consensus is that QE3 will most certainly take place. I would say though that it is mostly already baked in at this point, so even if we did get it formally announced the "pop" thereafter would be short lived.