Federal Reserve

Stocks soar, the Fed pulls out all the stops!

Posted on by George Mahfouz

I know we keep talking about the Federal Reserve, but on Thursday Ben Bernanke announced the mother of all stimulus programs. The new stimulus package includes $4o billion a month to be injected into the economy  and a promise that it won’t stop until the unemployment picture dramatically turns around. Never before has a central bank made such a large extended commitment and then tie it to the jobs market.

On the heels of this announcement, stocks soared with the Dow Jones Industrial Average (chart) finishing the week up 2.15% and is now up year to date 11.26%. The Nasdaq (chart) closed the week up 1.52% and year to date is up a staggering 22.22%. The S&P 500 (chart) on the week marched 1.94% higher and so far this year is up 16.55%,  and last but not least, the Russell 2000 (chart) small-cap index closed up 2.66% and is tracking a year to date gain of 16.71%

Yes I triple confirmed the above statistics and there are no typos. Now the multi-million dollar question is  “is this bull market out of breath?” It’s only natural to think that this tape is overdone and is well overdue due for a healthy 5% or even 10% pullback? This may especially ring true with the most recent middle east tensions, the upcoming third quarter earnings reporting season and of course the U.S. presidential elections all on the horizon. That said, with the Federal Reserves unprecedented commitment to truly do whatever it takes to get this economy and now the unemployment picture completely turned around, I would think that any pullbacks would provide excellent entry points. Whatever you choose to do, make sure to always consult with a professional investment advisor.

Have a great weekend 🙂

~George

Flat week…

Posted on by George Mahfouz

Despite Thursday’s 250 point Dow drubbing, the key indices closed mixed on the week. The Dow Jones Industrial Average (chart) finished the week down 126.39 points, the Nasdaq (chart) finished up 19.62, the S&P 500 (chart) closed lower by 7.82 points and the Russell 2000 (chart) closed the week out gaining 3.84 points. Equities digested a lot of news this week including the Federal Reserve indicating they are ready to step in should the economy continue to falter. However, certain traders were disappointed the Fed did not provide another round of quantitative easing, hence a significant sell-off ensued on Thursday.

Personally, I think the markets need to quit relying so much on central bank stimulus and begin to focus on corporate earnings, which have been overall quite impressive. We are entering the last trading week of the second quarter which could prompt end of quarter window dressing. Window dressing is a strategy used by certain mutual funds and institutions near the end of the quarter to improve the appearance of their fund(s), this could bode well for the markets. Another potential positive for equities is Q2 earnings reporting season which begins in July. In my opinion, this is a key catalyst in whether or not stocks will stabilize over the summer and hopefully de-emphasize what the central banks may or may not do. Good luck to all.

Have a great weekend 🙂

~George

Best week of the year…

Posted on by George Mahfouz

Stocks posted their best weekly showing of the year erasing almost half of the losses that occurred in May. The Dow Jones Industrial Average (chart) soared 3.59%, the Nasdaq (chart) +4.04%, the S&P 500 (chart) +3.72% and the Russell 2000 (chart) finished the week up 4.30%. This snapback rally was on the heels of China making a surprise interest rate cut on Thursday.

Up until this week, equites had been under immense pressure due to the European debt crisis and more recently our own country’s weakening economic picture. In last week’s blog I eluded to the potential of the global central banks stepping in and placing a floor under the markets with additional liquidity measures, and sure enough China was the first country to act. This was followed up by our own Federal Reserve reiterating to Congress thier commitment to intervene should the economy here continue to falter.

To sum up the latest actions by the global central bankers and it relates to equities, at the very least stability should come into the marketplace with the potential to recharge the bull run we had been on. In addition, I would expect that gold becomes a huge beneficiary from the heightened debt levels that are on the balance sheets of central banks around the world.

That said, at some point and time and probably sooner than later, the economies from around the globe will have to be able to stand on their own two feet. Central bankers can only do so much before the stimulus programs begin to have an overall negative effective on the economy and markets. Good luck to all.

Have a great weekend 🙂

~George