Courtesy of John Nyaradi.
Dow Jones Industrial Average (NYSEARCA:DIA) and S&P 500 (NYSEARCA:SPY) gave up ground as Nasdaq (NYSEARCA:QQQ) hung on to slim gains to start the new trading week.
The S&P 500 (NYSEARCA:SPY) rallied late in the day but failed to close in the black to lose its longest winning streak since the end of 2010.
Headwinds materialized from reports indicating a slowing Japanese economy and that, combined with thin summer trade, generated the S&P 500′s (NYSEARCA:SPY) first loss in a week.
For the day, the Dow Jones Industrial Average (NYSEARCA:DIA) fell 38 points, or 0.29%, the S&P 500 (NYSEARCA:SPY) fell 0.13%, the Nasdaq 100 (NYSEARCA:QQQ) climbed 0.2% and the Russell 2000 (NYSEARCA:IWM) fell 0.26%
The global economy continued slowing which cast a shadow over hoped for Federal Reserve action. With no economic reports scheduled in the United States today, markets drifted in anticipation of tomorrow’s retail sales reports and a steady stream of fresh data due later in the week.
But all of this is really just a sideshow as market players anxiously await and hope for news of more quantitative easing from Dr. Bernanke when he treks to Jackson Hole for the annual Fed conclave in the Tetons and for more action from Mario Draghi when the European Central Bank meets in Frankfurt in early September. Global markets have been rallying on the anticipation that “Big Ben” and “Super Mario” will once more step into world financial markets and save the day.
Who can forget just two summers ago, August 2010, when Dr. Bernanke made his pre-announcement for quantitative easing which launched a 17% pop in the stock market between the Jackson Hole speech and the official launch of QE 2 in November? In addition to the stock market rally, the dollar dropped sharply, commodity prices spiked and Treasury yields rose.
As we approach this year’s Jackson Hole conclave, Dr. Bernanke and his colleagues at the Federal Reserve are practically baying at the moon that more quantitative easing is coming. Dr. Bernanke hinted loudly at this possibility during his recent Congressional testimony. Last week, San Francisco Federal Reserve President John Williams said that he is in favor of more asset purchases, and Boston Fed President Eric Rosengren added his support for an “open ended” strategy of Federal Reserve asset purchases. The howling of the “big dogs” just can’t get any louder than this.
Bottom line: A late summer rally appears to be well underway as central bankers lay the groundwork for more global monetary support. Markets will likely respond sharply and the only question will be, “how long the relief will last?” As we head for the end of summer, a high-probability scenario is higher prices for the short term with more uncertainty farther down the road as autumn and the election approach.
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