A few weeks ago we opined about the various reasons the market was declining at the time. One of the reasons we discussed was potential concern about tho possible appointment of Larry “smartest guy in the room” Summers to succeed Ben Bernanke. Bingo, Summers realizes he has no chance of being confirmed so he withdraws his name from consideration. Did someone say he was a smart guy? I wonder, if he bought calls before he resigned would it be considered trading on inside information? Then again he never would have thought that news of his official demise would rally the markets so chances are he did not buy market calls. If it turns out that he did bet the market would go up on news of his withdrawal than I would have to reconsider my opinion of him. Somehow I doubt it.
In any event the news that he would not be the next Fed chairman rallied the market about 1.5%. This news was followed in a few days with a September surprise from the current Fed Chairmen that the easing of QE would have to wait a bit. This rallied the markets anther percent or so. This really did surprise most everyone, including me. I had thought the the Fed would at least announce a token slowing of asset purchases. That they did not due so and the markets rallied says that they are still very concerned about employment growth which continues to be anemic. It also reinforces the impact that the Fed is having on the stock market. As a result, as our chart shows, the market has reentered the uptrend that it had been in for most of the year. The big question is will it stick. Sooner or later the Fed has to change course and reason would suggest (not that the markets are always reasonable) that the markets wont like it. In any event move up your stops and enjoy the party as long as it goes on. Just keep an eye of the beer keg. Eventually the last one will run out and there wont be a replacement! As always, feel free to contact me if you have questions or want to chat about the markets!