A last minute spike pushed the S&P 500 up a few points to generate a 0.4% gain in the index, while the NASDAQ added 0.9%. Stocks gapped up to start the day and held for much of the session but a report mid afternoon that Egan Jones had downgraded the U.S. based on QE had stocks sell off from their highs.
....the FED's QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US.
As for the indexes, the S&P 500 sat for the second day above its ascending channel as it is in an overbought condition. However, volume continues to improve...
With the NASDAQ, with leaders such as Apple up 1.2% and Google 0.5% that index also continued upward.
Looking at the NASDAQ McClellan Oscillator we see a quite overbought reading but not yet at extremes seen earlier in the year. Certainly this level is high enough to see some consolidation early next week but there could be one last push up to move the reading a bit higher.
As for the week it was all about the Fed in the end; the dollar was crushed (so Americans lose purchasing power); in return they get higher asset prices. A net positive for those who own assets, not so great for those who do not.
On that note, two economic reports today showed consumer prices rising in the past month by 0.6% with gas prices accounting for 80% of the increase, while U.S. retail sales came in at 0.9% driven by (wait for it) higher gas prices. Ah, irony.
- Retail sales increased a seasonally adjusted 0.9%; gas station sales jumped 5.5%, the most in nearly three years and a reflection of sharp price increases.