State of the Markets


By David Moenning
Chief Investment Strategist

It is little wonder that the individual investor is no longer in the stock market (well, except via their 401(k) plans of course) as there are times - such as yesterday afternoon - where the game makes absolutely no sense at all.

As exhibit A, I submit the action in the major stock market indices immediately following the release of the minutes from the March 13th Fed meeting. In short, you need to understand a little something called market logic (an oxymoron I believe) in order to make sense of the action.

First, the very second the minutes were released, the market dove.

Okay, I will admit that a big reaction to news by the market indices isn't exactly groundbreaking stuff. However, what we're talking about here is a very lengthy summary of a FOMC meeting between a bunch of high-level economists who don't exactly speak English in that room. Thus, the release of the report didn't give anyone an X vs. Y comparable to work from. No, you actually had to read the report in order to gather that the Fed was a bit more upbeat about the economy and that there wasn't much in the way of discussion for a little something called QE3. But that didn't stop the programs from being run. To which, I say, hmmm....

The way this game works is the media actually has the report ahead of time, but there is a press embargo in place until 2:00 pm Eastern, meaning that the report can't be released until then.

But am I the only one who finds it strange that the boyz with the fancy computer toys had their big sell programs all loaded up the very instant the embargo was released?

Yes, I understand that computers can scan data a bit faster than I can. But in this case, you had to actually understand that the better economic situation being described by the FOMC members meant a lesser likelihood of QE3 in the future. My point (yes, there is one) is that it looks like some folks might have gotten a peek at the report before the rest of us. To which, I will again say, hmmm...

But the real issue here - and the reason I'm guessing most individual investors where left shaking their heads and mumbling, "hmmm..." to themselves after the release of the Fed minutes - is the fact that the market dove on what surely sounded like pretty good news.

And I quote, "The information reviewed at the March 13 meeting suggested that economic activity was expanding moderately. Labor market conditions continued to improve and the unemployment rate declined further."

In short, the FOMC was admitting that things looked decent out there in the economy and they even went so far as to use the words "improve" and "unemployment" in the same sentence. And yet stocks dove. Repeat after me...

Now, for experienced investors this isn't all that confounding. The market's immediate "hissy fit" as one of my colleagues described it, was in response to the fact that the fast-money traders were apparently looking for some sort of hint that additional QE (or something along those lines) would be forthcoming. After all, stocks had been bid up last week on a speech by none other than the Fed Chairman himself in which Mr. Bernanke managed to lead some to conclude that the Fed was ready, willing, and able to keep the bond buying party going strong. Thus, when there was no real hint at any new Fed assistance (actually the minutes seemed to hint at just the opposite) those looking for another QE fix hit the sell button repeatedly.

If truth be told, in reviewing the flow of economic data this year, I am not really a member of the QE3 camp - at least as far as the data is concerned. However, I can see why Mr. Bernanke wouldn't want to take any chances with this recovery. And because of this I see how QE3 could happen. But, to anyone thinking that this economy and this stock market "needs" more QE, I will have to say, hmmm...

Since this column is really about identifying the drivers of the market action, the real question is how much of this year's impressive rally can be attributed to the idea that the Fed might start dropping money out of the sky again. At 2:40 pm Tuesday afternoon, it looked like there just might be a fair amount of QE expectation baked into the market's cake. And for all those traders out there who have been looking for a correction to begin, it looked like this might be it as the Dow was down triple digits and a breakdown on the charts appeared to be only a sell program or three away.

However, the bulls and their dip-buying buddies were having nothing to do with the thoughts of impending doom as they proceeded to once again do their thing. And although stocks did still finish in the red, the question of whether or not QE expectations will be part of the equation going forward makes me say...

On the Economic front... ADP reported that private sector labor market created 209K jobs during the month, which was in line with the consensus expectations for a gain of 210K. February’s jobs total was revised higher from 216K to 230K.

Thought for the day... Awareness and choice are yours to exercise...

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Economy , Stocks , US Markets

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David Moenning

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