Circle your calendar for Sept. 13. That afternoon, Federal
Reserve Chairman Ben Bernanke will decide whether theeconomy (and
by extension the stockmarket ) will need a major boost with another
round of monetary easing measures. If he moves forward and decides
to give more juice to the economy, then the market could extend its
recent rally. But if he presses the "no action" button, investors
may just head for the exits.
We can actually get a pretty good sense of howthe Fed will
decide in advance. That's because a slew of economic data will hit
the newswires in coming weeks and Bernanke will be watching along
with the rest of us. Many investors are actually hoping the
economic data look fairly weak, as that boosts the chances of the
Fed taking action. Bernanke & Co. surely hope it doesn't come
to that. In fact, I'd wager they might lose a fair amount of sleep
the night before these numbers are announced.
If you want to handicap the Fed's eventual decision, then here
are four important economic readings the Fed will be watching. You
should be tracking these reports in the coming weeks, too...
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Reading # 1: Tuesday, Aug. 28
The Fed wants to know whether consumers are in the mood to spend.
The prior month's consumer confidence reading was a tepid 65.9,
though that was still higher than consensus forecasts. Economists
predict the figure will rise slightly to 67.0, but if recent
comments from retailers are any guide, then even that number may be
exceeded. If so, then investors may conclude the Fed won't act in
mid-September.
Reading # 2: Tuesday, Aug. 29
The pending home sales reading actually dropped, on a
seasonally-adjusted basis, from 100.7 in June to 99.3 in July. Here
again, recent signs point to a bit of strength. Consensus
forecastscall for this gauge to rise to 103, and any number above
that might give the Fed a reason to hold off a bit longer before
deciding whether to take action.
Reading # 3: Friday, Aug. 31
Economists are expecting a
Chicago Purchasing Manager'sIndex (PMI)
reading of 55.0. Any reading above 50 signals economic expansion.
Even though this and the consumer confidence reading have a
positive-leaning bias in the forecast, the Chicago PMI reading may
in fact underwhelm. Factors ranging from
the nationwide drought
to a slowdown in China and Europe to early concerns about
the
effect of the "Fiscal Cliff"
may conspire to lead to a weaker-than-expected PMI reading.
And paradoxically, that would be good news for those hoping for a
Fed boost.
On this same day, Bernanke will be giving a pubic presentation
at Jackson Hole, Wyo. Many will be tuned in to see if there are any
hints about forthcoming Fed action, though Bernanke is likely to be
sufficiently obtuse to frustrate the tealeaf readers.
Reading # 4: Friday, Sept. 7
Is thejob market healing? The Magic 8-Ball says "Reply Hazy, Try
Again." Frankly, the employment picture can't seem to build a
sustained head of steam, nor does it want to fall out of bed
either.
U.S. Employment Situation
Economists are currently expecting that 120,000 jobs were
created in August, though that figure will be fine-tuned by a pair
of weeklyjobless claims releases before the actual numbers are
released. Jobless claims figures haven't been very helpful
recently, delivering weekly results that have been fair to
middling.
Suffice it to say, if the August jobs number is above 200,000,
then investors will quickly conclude that the Fed wouldn't dare
give help to an economy that is hardly sickly.
Risks to Consider:
Even as investors watch the data and try to predict how the Fed
will act, there are many other events that could conspire to dampen
this current rally. This is no time for complacency, even as the
last week of August is typically filled with light trading
volumes.
Action to Take -->
This summer's impressive rally is due in part to expectations that
the Fed will take action and order another round of Quantitative
Easing. But beware. Such a move has given a short-term boost to
stocks, but the euphoria may quickly fade. If we do indeed see a
powerful Fed-induced rally, then it may be wise to harvest profits.
Conversely, if some combination of these readings comes in
reasonably healthy, then don't be surprised to see the market
actually fall in the ensuing weeks, as investors conclude that
another round of "easy money" isn't on the way.
-- David Sterman
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David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.