Today is a significant day for Wall Street and investors. At 12:30 p.m. eastern, the Federal Reserve will announce their plan to keep the economy and the stock market moving forward. At 2:15, Ben Bernanke will take on the press. Both events could cause stocks to gyrate more than Jennifer Lopez.
Since the latter half of December, the market has been on a tear in anticipation of QE3. The floated trial balloons suggest the Fed will spend $1 trillion on mortgage backed securities. The idea is to move mortgage rates lower to firm up home prices.
While it will take some time to see if QE3 will send your house’s value higher; we do know it has sent stocks soaring. Now that the hype is about to turn news, TEN sees three possibilities that could emerge.
The Fed does nothing.
In this scenario, Wall Street would be forced to re-evaluate current equity levels. We believe stocks and commodities will let out a sizeable oh no if Ben says no. As Top Equity wrote on Monday, a typical correction will make a third to two-thirds of recent gains disappear. However, we don’t think it will be a death blow to the current run, just a pause before bulls attempt to bring the rally to new heights. That will be the real test.
The one caveat is that Wall Street interprets inaction as a sign the Federal Reserve believes the economy is picking up steam.
The Fed proposes something short of expectations:
Again, the initial response will likely be negative. Under this circumstance, TEN feels Mr. Bernanke will make it clear that the crew stands ready to take more action if needed. After the initial shock, traders will begin to factor in more easing and push equities and commodities higher, especially if the economic news starts to deteriorate.
The Fed does the expected.
This might seem strange, but TEN still believes the odds are high stocks sell-off at first. A classic example of buy the hype and sell the news. From there, we would expect stocks to recover quickly – perhaps as early as the next day. However, the biggest winner will likely be commodities. The first QEs sent gold, silver, oil, gas prices… through the roof. Top Equity would be buyers on any dip following the Fed’s announcement.
Our Prediction.
The Fed does what is expected and launches QE3 to “fix” housing. We think it has as much to do with what’s happening in Europe as your Zillow Estimate.
The IMF and the World Bank are essentially begging the Federal Reserve and European Central Bank to fire up the money printing presses. Both dramatically cut global growth rates for 2012 and said without intervention, Europe is likely to contract by 4%. There is no way – in our view – the U.S. avoids recession if the IMF and World Bank are correct.
In addition to peer pressure to do something, new Fed members are more accommodating than the regional presidents they replaced. The change helps clear the path to make a move.
Stock Market Trends: The Fed Goes House Hunting? is an article from: 
