We survived the Democratic and Republican conventions and hurricanes without any impact to the markets. Then the markets finally got their breakout to the upside resulting in multi-year high levels being eclipsed. Mario Draghi is becoming the financial equivalent of Winston Churchill in Europe. The US labor report was disappointing but only to the extent that you compare it to the economic prognosticators consensus. I think that the average investor had braced for a ho-hum report, which is what we got. When you put it all together, there seems to be an overwhelming expectation for QEIII. Hence the monetary gunfight at the OK Corral this week at the FOMC is being anticipated with heightened attention and potential market risks.
I am on the record as saying that QEIII is not necessary and that the monetary monarchs will not set forth a full blown third round of quatative easing. They might tinker with their current programs. With Draghi’s actions in Europe, I think that the ECB’s sterilization program will in effect be a global QEIII. Of course, our own Jeff Miller asks the question: Will The Fed Disappoint? I guess I am saying they will. My question is how the market will react? More on that tomorrow.
The generals have done a good job leading the way with names like Apple (AAPL), Google (GOOG) and General Electric (GE) hitting new highs. Of course, we have also seen some of the lesser quality companies such as Intel (INTC) and Facebook (FB) not tagging along for the ride. This is healthy because it allows you to focus on the winners and withdraw money from the underperformers.
As for today, I am looking for quiet action. This will likely continue until we hear from Ben Bernanke. I am also expecting a busy corporate action calendar chock full of buybacks, secondaries and dividend announcements. That might carry through for the rest of the week.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL and GOOG stock and calls and long FB puts — although positions can change at any time
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com
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