Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Preface: this is one incredibly stubborn market. 10 of 12 sessions in 2012 and 16 of 20 sessions since the Dec 19th bottom have been sideways or up. The down days have been mild to say the least, most of these few barely qualify as pullbacks. One knows just about any purchase now is going to take a punch to the face when the inevitable pullback occurs. But if you don’t buy you don’t partake. Meanwhile, positioning for any such pullback has proved futile, and created punches to your own face. A game of chicken. All this on sickly volume – this is the 2nd worst month for volume in the past 4 years – again the decades old rules of rallies on expanding volume has simply gone out the window since 2009.
We had a host of important earning reports last evening and all in all it was a push. No one really impressed but the bar continues to be very low (I’ve been reading how much analysts have dropped estimates during the worries of Q4, so now I see why the bar is so low), hence it remains a “good enough” environment. We have another big week of earnings next week capped off by Apple, and then we settle into less of the S&P 500 fare and more of the smaller companies in the Russell 1000 & 2000. The big event next week aside from a few earnings reports will be Fed day. According to Fed mouthpiece Jon Hilsenrath, there will be no quantitative easing announcement but we will get a new communication strategy which will have 2 key components.
- Federal Reserve officials are waiting to see how the economy performs before deciding whether to launch another bond-buying program. The Fed meets again next Tuesday and Wednesday, and officials are preparing to roll out a new communications strategy that is on track to include two key elements: their interest-rate projections and a statement explaining their objectives for inflation and employment. Clarifying the central bank’s objectives could make easier the tasks of deciding whether to buy more bonds and explaining their reasons.
- The Fed is likely to state more directly than before that it has a goal of about 2% inflation over the long run. It is also likely to lay out levels of unemployment that Fed officials believe are achievable, with the understanding that the unemployment landscape could shift over time. Fed officials have said in the past that the unemployment rate could be between 5% and 6% without causing inflation, though that number might be a bit higher in the wake of the recession.
- Some Fed officials are open to more bond buying if the economy doesn’t continue to improve, or if inflation falls much below their objective of about 2%, but they believe the outlook is too murky to move now, and views vary on the costs and benefits. When they have publicly discussed the subject of asset purchases recently, many Fed officials have tended to hedge, suggesting that they aren’t ready to make the leap.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
