NASDAQ Set To Hit 11 Year High As ‘All Eyes On Ben’:
Stocks closed mixed today as investors pondered whether Ben Bernanke and the Fed might ease sooner rather than later. The arguments for the Fed easing sooner are based on its dual mandate of keeping the economy at full employment with low inflation. Inflation is uncharacteristically low and the jobless rate is high.
Arguments that more easing would cause inflation were wrong and now those against QE3 have morphed into politicized rumblings that it just doesn’t work – although almost every major central bank is doing it right now. Easing in all forms has been working for quite a while if one considers the goals at the time.
A high unemployment rate isn’t news with 42 consecutive weeks of unemployment above 8 percent or more. The Fed should have been more aggressive earlier and has only used the skill of signaling activity successfully. The ‘Bernanke Put’ has remained in effect for years now and has made shorting trades dangerous at the hint of more central bank easing at home or abroad. Most traders and investors know that the Fed Reserve signaling something and not actually doing it is a better result than any form of implementation. August unemployment data will not change the headline number to below 8 percent and after a marginal month for initial jobless claims, it’s possible unemployment could rise to 8.4 percent this month.
The NASDAQ is set to hit new highs that the index hasn’t seen in 11 years based on strong price action from Apple and Oracle among others. In the most hated (lowest volume and volatility) rally in decades, traders are vocal about going short with Apple ready to move parabolically while the S&P sets its sights on multi-year highs after hitting a four year high recently. Many investors in NASDAQ stocks are just now breaking even on investments from years ago. Even perennial laggards like Microsoft are making a bounce toward new multi-year highs which makes us a bit more bullish on stocks, bearish on bonds long run.
A turnaround in the market could happen to the downside but the upward momentum hasn’t slowed down for longer-term holds. We are bullish short term and expect a run up in stocks before Jackson Hole – a sign that monetary policy still has legs. Mitt Romney stated he would fire Ben Bernanke and we believe the Fed has been a bit flatfooted. All the more reason they could ease now. We expect a move that may not just be a traditional QE3 policy.