Stocks Finish Lower The Week After Fed QE3 Announcement, Is The September 2012 Rally Over?

One week after the massive bond-buying program from the Federal Reserve Bank was announced, stocks finished slightly lower as traders took profits.  A few distribution days occurred this week as market participants locked-in gains made after Ben Bernanke announced he would buy $40 billion in bonds each month indefinitely.  We believed there would be some weakness after stocks rose last week which would serve as a buying opportunity and the long run rally is still largely in tact.

The September 2012 rally may be giving buyers an opportunity to get in at more optimal prices than from last week.  Because money managers may be chasing performance, some may be purchasing stocks before they have to explain to clients why the underperformed.  Right now portfolio managers are telling clients why they haven’t bought the XLF which is up 25 percent this year and the Federal Reserve Bank did an “Operation Twist” and a QE3 along with an announcement from Mario Draghi that the ECB would also be buying bonds.  Some managers have decided to be early shorts and ‘fight the Fed’.  The confluence of these aforementioned factors as well as general disagreement about prices and the earnings outlook, gives U.S. stocks more reason to go higher in the medium and long run.  We would be buying on dips in the short-run as key sectors, namely the financials, tech and small caps are above key support levels.