STTG Market Recap Sep 13, 2012

It remains all about central bankers after another market surge on the back of new central bank easing.  As expected the Federal Reserve moved out the date that it expected to provide “exceptionally low” rates from 2014 to mid 2015, and followed that up with a (for now) unlimited quantitative easing program pegged at $40B a month.  The surprise was all of these proceeds will be directed to the mortgage backed securities market, rather than a mix of Treasuries and MBS as had been expected.  Further, the key phrase today was as follows:

If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.

Hence, unlike previous rounds of quantitative easing which had a pre determined limit, this one is open ended and potentially infinite.  If you believe many of American’s employment problems are structural (globalization, automation, etc) rather than cyclical this program could be in place for a very long time.

The S&P 500 gained 1.6% and the NASDAQ 1.3%.  Volume picked up noticably as this was a solid day of accumulation.  The S&P 500 has now surged over the top end of the ascending channel it has been in, posing some near term risks as things have become frothy:


The NASDAQ , after pulling back to the highs of the previous range did a U-turn as well.


The dollar has been hurt the past few weeks…


…and money continues to flow into commodities of all sorts, as the CRB index is at a 6+ month high….


….meanwhile gold continues to rally on the curreny devaluation trade.


Meanwhile back in the “real” economy, U.S. companies face the prospect of the lowest revenue growth in a decade (excluding the 2008-2009 crisis) putting into effect a very interesting cross current where earnings will be pressured, but the liquidity spigot will be forced to create an expanded P/E multiple for stock prices to continue to go up.

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