By: Michael Vodicka
“But even though Bernanke initially disappointed the masses with no word of new stimulation, he left the door wide open for further action, pointing to a weak labor market as his key indicator”
This was a big week for the market. The key event was Fed Chairman Ben Bernanke speaking at an international economic summit on Friday. The Street had been crackling with anticipation that the leader of the most powerful central bank in the world would announce a fresh round of monetary stimulation. That is what has been driving stocks higher for the last two months, anticipation that powerful central banks will print more money and juice the market with liquidity.
But even though Bernanke initially disappointed the masses with no word of new stimulation, he left the door wide open for further action, pointing to a weak labor market as his key indicator.
With the market once again reassured that the Fed would act on any signs of economic weakness, stocks posted a sharp intra day reversal finishing Friday and the week with a gain.
As it stands the averages continue to linger near the recent 4-year high, with a slight bias to the down side. Take a look at the S&P500 in 2012 below. Prices were rejected pretty hard from the high with the big intra day reversal seen in the red candle. Keep in min, that was only the first test of this critical area. Since then, prices have been stronger to the upside, with the market sticking to its well worn “buy the dip.” If the bears win this battle and prices turn lower again, look for support from the trend line that has been in play since early June.
Looking forward, there is a very crucial jobs report hitting the wire on Friday morning.If ti comes in weak, it will lead the market to think the Fed is going to stimulate, which is good for stocks. If it comes in strong, it will lead the market to think the economy is stronger than expected, which is good for stocks.
This has been the pattern for the last few years. Good news is good news, and bad news is good news too because it means the Fed will jump in. The Fed has made it clear its first priority is jobs. And with inflation trending low, that gives them plenty of room to act.
The averages are trading in a key area near the high, which makes this an important week for the market.
Updates:
With the central banks dominating the headlines this week, the market got all fired up about gold, sending Double Gold (DGP) to an outsized 3% gain. Gold is now up 8% on the year, putting it on pace for its 11th straight year of double digit returns.
McDonald’s (MCD) also performed well, adding 1.5% on the week. This was the #1 performing stock in the Dow in 2011, climbing from the mid $70’s to over $100. But this year, shares have pulled back, trading mostly between $88 and $94. It looks like shares are taking a little breather after a big 2011. And also, higher input costs are probably weighing on investor enthusiasm with grain prices recently spiking in the drought. But longer term, big multinational company’s paying a nice dividend are very much in favor with the Street, so that should provide more support.
Apple. Inc. (AAPL) traded lower on the week, but shares continue to linger near the recent all-time high above $676. The iPhone 5 should juice both sales and investor enthusiasm. And Apple’s strongest quarters are near the holiday’s, so there are a few short-term catalysts on the horizon.
That’s all for the week, but until next time, here is a preview on the important jobs report set for Friday. Enjoy!
Hiring Probably Limited by Slowing Demand: US Economy Preview
Your Investment Partner,
Mike
Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment Advisor (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of Trade before spending five years managing equity portfolios for a private investment research company.
Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).
