Stocks ended the week higher with the S&P 500 registering a 1.07% gain for the week. Here's the S&P 500 SPDRS ETF which mimics the S&P 500 Index:
Treasuries are telling us yes, at least in the short term:
The Dollar has come off it's highs and true to the prevailing inverse relationship of most of the past decade stocks climbed higher as the Dollar weakened. However, it is still showing a resilience that is not indicative of it's past history. I believe that if this rally in stocks is real (and I'm ambivalent on that) the inverse relationship of equities and the Dollar may be changing. I'll expand on this thesis in future commentaries as time allows.
Commodities are gaining strength but the price action is lackluster and tentative at best. We had a bit of a rally last week into this week which I'm attributing to "hopium" but we backed off a bit going into the weekend:
Briefly, these are the issues driving these markets and unless some other news event comes to the fore before 8/31 these will predominate:
1. Everyone is waiting for the Jackson Hole confab on Friday, 8/31 when it is expected Fed Chairman Ben Bernanke will announce QE3. I personally believe that some type of monetary stimulus will be announced but there will be no unsterilized purchases of government or mortgage securities. And I believe the market will be disappointed and sell off. Look for "leaks" out of the Fed before the meeting to diffuse the tension building in the market.
2. Europe is on vacation (and clueless as well). The market was first disappointed in ECB President Mario Draghi's lack of action a week from last Thursday but then decided to take a different spin on his remarks. With nothing going on because of "vacation" everyone is in a wait and see mode until European politicians come back from vacation. In the meantime, Spanish bond yields are backing up again as the bond vigilantes are turning skeptical on Draghi's "whatever it takes" and "believe me it will be enough" remarks.
There's a key date in September that may create volatility in our markets:
9/12 - the German Supreme Court votes on the constitutionality of the ESM (European Stability Mechanism). Expect a positive outcome but if we're surprised by a negative decision take it as a signal that the Germans are ready to 'throw in the towel" on the Euro experiment.
On the same day the Dutch vote for a new government. If the present government is overthrown take that as a signal that the "northern periphery" is getting tired of financing the "southern periphery" and the cohesion of the European Union is weakening.
On 9/13 EU finance ministers meet in Cyprus. Much of what comes out of these meetings is meaningless bombast. Expect more of the same as people are still getting over their sunburns from their "vacations". :-)
The bottom line about Europe is this: nothing is settled and there will be more volatility to come.
3. China - reports this week were negative but we did get a bounce in the Shanghai Composite which I interpret as just a "hopium" bounce. There's much more going on in China than meets the eye or can be attributed to an economic slowdown. There is a major demographic/economic transition going on but I don't have the time to expand. Maybe in a future commentary.
That's it. Have a great week!