Tag: Stocks
A Fool's Rally 9.20.2012
This rally has been one of the most deceptive as it has been sparked, and supported by the so called, “Bernanke Put” and NOT by healthy macroeconomic conditions. The Bernanke Put refers to the notion that Federal Reserve intervention will save the stock market from downside risk by way of easy monetary policy. Despite the consistent negative economic data reports, and gloomy forecasts out of the US and global economies, stocks traded at a 10-12% premium on hopes of a third round of quantitative easing. Markets reacted positively to bad news, and negatively to good news, based on the logic that clearer signs of a weakening economy will push the Fed to act.
Markets finally got what they wanted last Thursday when the Fed announced a third and likely perpetual round of quantitative easing in which it will buy $40 billion of mortgage-backed securities each month. The Fed hopes to revitalize our sluggish economy by bring down mortgage rates to create housing wealth in hopes of increasing consumer spending to ultimately aid the suffering labor markets. It is important to note that the first two rounds of QE were not very effective. The stock market is up 2% from the announcement and is trending higher, but what has changed fundamentally? Nothing. The only reason for QE3 is a weak economic consisting of anemic GDP growth of 1.7%, unemployment above 8% for the last 43 months, and weak consumer spending. I see nothing to celebrate.
I believe this is a fool’s rally, and the opportunity is to the downside. Stocks will most likely continue to rise throughout the election before making a hard reversal. “The bull goes up the stairs, the bear jumps out the window.” I would look to take some profits off the table before he jumps.
History proves the only thing certain with easy monetary policy is inflation. While the annual rate of inflation from 1985 – 2011 has been tame at 2.1%, an open-ended quantitative easing policy certainly increases inflation fears. With inflation risk on the table, accompanied by the fiscal cliff and the ongoing European debt-crisis, investors and policymakers have little to celebrate. The end result will not be pretty.
Ciro J. Lama is currently an undergraduate studying Finance at the Zicklin School of Business – Baruch College
Website: CantalinoAssetManagement.com
Follow me on Twitter: @TraderCantalino
Morning Rage 9.20.2012
Bad news across the Atlantic continues with a sharp loss in the services industry for European countries. Yesterday, housing starts and permits reports were lower than expected, but still within range of analysis expectations. Existing home sales grew 7.0%.
Rite Aid Corp. (RAD| +0.77% [1.34]) released earnings reports this morning and posted 41.4M in losses, an improvement from the same quarter of last year’s 94.8M losses. Analysts expected a loss of $0.07 a share and Rite Aid beat the expectation, losing only $0.05 a share.Weekly jobless claims reports are released this morning at 8:30am EST with an expected claim drop at about ten thousand this week. The Philadelphia Fed survey will follow at 10:00am, which is an index of general business and manufacturing conditions. The index is expected to decline, but at a lesser pace than last month.
Other post-earnings stocks to keep your eyes on are Bed, Bath, and Beyond (BBBY | 68.79) which is down $-3.44, or 5%, after higher costs left earnings unable to meet analysts’ expectations. Expectations were higher this quarter because of improved government data on same-industry sales.
Market Recap 9.6.2012
The S&P 500 closed at session highs of 1432.10 for a gain of 2.04%. The Nasdaq also closed at session highs up 2.17%. The DJIA closed at a session high of up 244.52 points for a gain of 1.87%.
A huge day for equities across the board, with the S&P 500 logging its best day since January 2008.
James Ramelli UIUC graduate in Finance. Email: james@keeneonthemarket.com Follow: @Jim_KOTM
Bloomberg Interview 9.5.2012
September Seasonal Stock Performance
Post Labor Day performance is defined by a Triple Witching Week where stock options, index options, and index futures all expire at the same time on the third Friday of the month. The third week of September, the week of expiration, as been slightly bullish since 1990. The following week is consistently bearish posting only 3 positive gains in September since 2000.
The end of September is prone to weakness due to institutional portfolio restructuring; the last day of Q3, this year on september 28th, has been down 10 of the last 14 years. From 1995 to 1999, the Dow average 4.2% gains, only to follow with a six year losing streak averaging -5.9%. The Dow recorded two positive years in 2009 and 2010 averaging a 5.0% gain. For the last seven years, the S&P has posted gains in September with the exception of 2008 during the financial crisis. The NASDAQ also posted gains for the past five years with the exception of 2008.
Alex Kalish holds a masters in economics from Suffolk University.