Forecast Summary and Analysis
of the U.S. Stock Market
For months stocks have been up up and away.
Most of the market believe a pullback is near, still. But as always, the
stock market can and will do what is least expected.
January Federal Reserve FOMC minutes
caused a hiccup in stocks in late February with the FOMC minutes indicating that
the committee is rethinking Quantitative Easing. Global stock markets sold
off with the U.S. seeing two days of negative sentiment. But as has been
the case after the knee-jerk reaction stocks put on a small rally regaining
Fed Chief Ben Bernanke to the rescue
as he Stumps monetary policy on the Hill, defending Quantified Easing as markets
weigh that against Cyprus uncertainty and the U.S. Governments continued
inability to get a budget deal through. Bulls won out again sending stocks
up posting gains ahead of more uncertainty.
A good payroll number for February
with a net negative revision for December and January caused stocks to rally,
all the while Sequestration kicked in. Many months of good job creation
numbers with favorable revisions, needed for the labor market and the
economy to recover.
Jobless new claims chart show a smidgen of
improvement but still looks like a very difficult recovery for the labor market.
The Dow (DJIA) and S&P500 continue to make new
highs, as the S&P 500 breaks through the longstanding October 2007 record
high. It's expected that testing will see a small pullback initially then
either blow by the high or pullback- It's also conceivable the index to dance
around the October 2007 high.
Europe is back in focus with Cyprus
bailout in question. Cyprus Parliament rejected the initial deal, the so called bank deposit
tax levy, but before rejecting it they had to think about it. The news
broke over the weekend so traders and investors were ready to hit the sell
button when the markets opened. So, markets around the globe cratered on
the news only to recover later in the week. Uncertainty equals volatility!
Uncertainty still grips some [global] markets
but the U.S. Stock Market shelved Cyprus and all of Europe's problems for now. Cyprus accepted Lender
agreement to close the bad banks and freeze deposits over $129,000. Banks
are open after weeks of being closed. For now the drama is over as the
U.S. stock market continues to inch its way higher.
The Dow and S&P 500 are making all-time highs
and most everyone is looking for a pullback/ correction. Guess what!
Stocks probably will continue inching higher.
*The NASDAQ is lagging this year and
could outperform the other indexes by years end. The tech heavy NASDAQ is
well ahead of the Dow and S&P500 over the course of the bull market, which
started in March 2009. NASDAQ* up over 86%, the S&P 500* up over 62%, and
the Dow* up over 57%. *data as of 5/4/2013.
As soon as investors figure
out stocks are continuing higher, they will rally the market, pour even more money in,
then it will tank. Well maybe not tank. Maybe it will pullback
slightly and then continue higher. Sell in May and go away wasn't the
thing to do this year.
It's now very clear that the Fed will
maintain monetary policy as long as data supports their position in purchases/
Once the data, especially labor-market
data, gets to a data point that the Fed will want to begin warning of imminent
policy change, traders and investors will reverse their strategy and begin
treating good news, such as jobs data, as bad news.
There will be a battle between those
that go long and those that short the market when they see the slightest hint of
stocks giving up. The stock market is well overdue for a pullback/
correction and Shorts know that. Watch Longs or Short to see who can win
Bernanke's latest press conference could be categorized as somewhat hawkish as
adjustment, or tapering to policy bond purchases could happen rather quickly if
the economic recover continues to accelerate. We could be within months of
the start of the tapering process. This is where the stock and bond
markets take good news as bad, from here on out.
Lackluster data will be good for stocks as well as the
Fed. Like a lower GDP than expected and a tempered jobless new claims
number will be ideal for the market. It would tell traders and investors
that the recovery is ongoing but it would also hold the Fed back from removing
or limiting that IV "sugar" drip. But watch out for a blockbuster payroll
number/ revisions and a move of the unemployment-rate lower as these will help the Fed to
begin taper, that would be a sell signal for stocks.
Earnings will continue to drive
stocks but more volatility can be expected when traders and investors begin
pricing in Fed Chief Bernanke's replacement.
Data also will continue to play an
important role but meager data-points will continue to hold the Fed on the
tapering sidelines. But strong reactions can be expected when data is
reported stronger or weaker than anticipated.
If news becomes saturated with tapering-talk from the
media talking-heads, expect stocks to react to the downside when the news gets
relentless. Tapering chatter will pick up the closer to the actual
Data doesn't support action by the Fed when viewed by
a layman. But the Fed could begin tapering based on perceived data trends.
Although Bernanke as much as said that the unemployment-rate would have to be
well below current levels before monetary policy change- and that hasn't
The Federal Reserve has made it very clear, tapering
will begin when economical data reaches FOMC targets.
It's possible that tapering could be held off until 2014. Unless economical data makes big strides in the next couple months of
2013, bond purchasing probably will continue. It's not likely that
the unemployment-rate will meet their target anytime soon; the target
for the Fed funds rate (interest rates) will probably only begin to rise after tapering.
The other thing to contemplate, does Ben Bernanke want
to begin tapering, or make any policy change, on his way out or will he leave it
for his successor- Yellen.
With the Fiscal Cliff (tax increase and
reduction of Government spending through sequestration) and the Debt Ceiling
'deal' that passed through to the President, by signing off on the Senate
construct, the drama will be replayed in January and February. But for now
its back to basics- data and earnings.
Fiscal Cliff Is Done, Now It's Onto Earnings/
Outlook And Economical Data
Area and U.S. have been under
pressure over debt and budget issues.
Weekly Performance and what
drove the markets.
market open- outlook.
The forecast for the U.S. stock market.