Almost every single Friday, the markets are higher. This is due to the Friday Effect. The Friday Effect states that as the Federal Reserve attempts to prop up asset prices to get the average American to spend, Fridays will be neutral to higher to help coax spending on the weekends. In simple terms, when would a consumer be more likely to spend? When the Dow Jones Industrial Average drops 300 points or is up 300 points? Obviously, the Federal Reserve attempts to keep the markets neutral or higher on all Fridays.
Today however, there was a surprise massive drop in the Shanghai Composite of over 5%. This through a curve ball at the Federal Reserve and their propping could not handle it thus far. The markets are lower today with the SPDR S&P 500 ETF (NYSE:SPY) trading at $120.28, -1.36 (-1.11%). While the markets are sharply lower, the Federal Reserve will still attempt a rescue to bring the markets back up. Today is a POMO day. POMO stands for permanent open market operations. This is where the Federal Reserve buys treasuries from the banks and the banks use that money to help the markets. It is assumed they will try and keep the Friday Effect in play even with this China curve ball.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
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