Investors Await September 2012 FOMC Meeting and European Reactions To Draghi Bond-Buying Announcement:
Investors are anxious to get news from the Fed Reserve Bank on whether they will move forward with another round of easing. After another lackluster month of employment in August 2012, the FOMC has enough ammunition to pull the trigger and implement another quantitative easing program- QE3. QE3 naysayers are once again huddling up to begin clamoring that QE programs don’t work but in our opinion, it’s the only thing working to lift U.S. stock prices.
No recent policies from Washington D.C. have been helpful to markets and the current rally isn’t related to President Barack Obama’s stimulus plan which hasn’t lowered unemployment to the 5 percent range that was promised. Unemployment has been above 8 percent for 43 consecutive months and the labor force participation rate has dropped to multi-decade lows. The U.S. economy has been ravished by possible government shutdowns, a downgrade from the S&P 500 and contagion effects from the European/Asian crisis.
Bernanke has been “the only game in town” and if he delivers on QE3 it could be good for equities and bad for bonds. We are bullish on equities long term are looking for opportunities this week before the Fed Bank September 2012 meeting if small caps, tech and financials are at attractive price points. We are monitoring reaction to the bond-buying announcement from ECB President Maria Draghi last week to see if the rally may pullback slightly.
Returns this month so far -
- IWM – small cap ETF +3.87 percent
- XLF – financials ETF +3.43 percent
- S&P 500 +2.25 percent