EmailIt was quite the ride last week, filled with the action of roller coasters, bumper cars, spinning tea cups, and roaring rapids -- and I'm not even talking about the equity market. Last week I was traversing the entertaining landscape of Busch Gardens Virginia, although watching the equity market from a distance I could see that it was another thrill ride on Wall Street that ended with a nerve-wracking drop.
The volatility has been remarkable. It is consistent with a market that is racked with uncertainty, yet thinks mostly in pessimistic terms.
The truth of the latter matter is reflected in the fact that the S&P 500 has declined 16% in the last six weeks while gold prices have surged 21%.
Unfortunately, nothing changed in the past week in terms of catalysts. The market is still fixated on debt issues in Europe and the inability of leaders there to instill confidence that they can be tackled effectively, while at the same time the market continues to dwell on signs of an economic slowdown in the U.S. that is prompting recession calls from a number of pundits.
In spite of those fixations, the equity market is indicated to open higher this morning. The S&P futures are currently 1.9% above fair value, so it will be a strong start.
The bullish bias may be in response to reports German Chancellor Merkel is softening her stance somewhat on the idea of a euro bond; it may be in response to lower Brent crude prices following news Gaddafi's control of Libya may soon be coming to an end; or it may be in response to the thought that Fed Chairman Bernanke will provide some hint of stimulative action in his speech on Friday at the Jackson Hole Economic Symposium.
Then again, the bullish bias may simply be a case of there being more buyers than sellers at the moment.
Whatever the reason, the cash market (a.k.a. the thrill ride) is going to climb in the early portion of today's ride.
There isn't going to be any economic data to push it along either. The economic calendar is on the light side this week, featuring new home sales tomorrow and followed by durable orders, initial claims, and the second estimate for Q2 GDP later in the week.
That is not to say the economy won't be a focal point. It will be, especially with the Jackson Hole confab and visions of QE3 dancing in the minds of some traders.
We are not expecting a QE3 announcement or even the blunt hint of such a plan. Rather, we suspect the Fed Chairman will address the weaker-than-expected economic activity and call attention to what more the Fed can do if necessary. This will be done, though, more in a lecture-like way than in a wink-wink kind of way.
In the meantime, stay safe. Keep your seat belts fastened and your arms and legs inside the ride. We're not exactly sure what is around the next corner on this thrill ride.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
