Chairman Powell’s comment yesterday that the Fed will “slow their bond buying program as the markets improve” knocked the stock market down mid-morning. On Monday, the Fed’s announcement that they are going to buy individual corporate bonds as part of their newest QE program gave investors the feeling that the Fed was going to keep the pedal to the metal even if things calmed down going forward. So yesterday’s comment from Mr. Powell seemed to throw some water on that thought. However, the decline was a short-lived one...and the S&P 500 was able to recover 2/3 of what it gave back in the morning by the close...and finished almost 2% higher for the day. The rally came on excellent breadth (13 to 1 positive on the S&P 500), but the volume was on the tepid side.
There is no question that this week’s action has been very good so far, but it’s not enough to declare that the “critical juncture” we’ve been talking about recently is going to resolve itself to the upside. This is not a concern because we’ve been expecting that it will take a couple of weeks before we’d know how this situation is going to resolve itself. We’re still going to have to see either a meaningful move above the early June highs of 3232 on the S&P...OR a meaningful drop below its 200 DMA (near 3000) before we get any definitive resolution to this “critical juncture” in the stock market.
Of course, the much better-than-expected month-over-month retail sales number had a hand in yesterday’s rally...as did the news that the Trump administration is going to propose a $1 trillion infrastructure plan. More importantly, the fact that the year-over-year retail sales numbers were down significantly...& the fact that the House Democrats will never give the President ...
