The market passed its latest, greatest test with flying colors yesterday, with the Fed hitting just the right notes to choreograph an overwhelmingly positive response to its Wednesday QE 2 announcement. Sometimes the market likes to fake you out on Fed day, moving in one direction before opening with a big gap on the the following day, but this rally has continued to show resilience and conviction at every turn. Bears clamoring for a sizable pull-in continue to be frustrated, and while none of us know what the future holds, this market certainly feels like it wants to go a lot higher.
The futures were slightly negative overnight, but surged into green territory this morning with the jobs report. Unemployment came in line with expectations at 9.6%, but the report showed an increase of 151,000 non-farm payrolls, a nice beat above the 60,000 expected. The Fed was able to instill confidence in the market and consumers up to the QE2 announcement to the point that the economy is showing signs of a stronger recovery. Thus, the final figure for asset purchases came in lower than the amount some initially expected. The Fed announced its plan for $75 billion in purchases a month, and reinvestment of maturing bonds, for up to 6 months, but perhaps if the economy continues to show signs of recovery they can stop the purchases short. Such a scenario is not likely, but the onslaught of better than expected data across a number of different indicators is certainly a positive sign.
Precious metals and other commodities soared on the news from the Fed, and after a brief pull-in Gold, Silver and oil look poised to outperform. The dollar plunged through lows on the news of a further increase in the money supply but is coming up for air this morning. It is not uncommon for stocks to digest and consolidate after such a big a move and big news, and that is our expectation for today. The “Fed Put” remains alive and well, though, and it certainly feels like there is more upside potential into year’s end.
