04/04/12   FOMC Minutes: Don’t Hold Your Breath For QE3

Editor’s Corner

Investor Heat Map: 4/4/12FOMC Minutes: Don’t Hold Your Breath For QE3

 

The first quarter went well for the U.S. stock market.  The second?  Not off to such a great start, at least in the first three days.  On Monday, the S&P 500 posted its highest close of the year.  Short-term trends suggest that peak may not be surpassed any time soon.

Tuesday’s release of minutes for the March 13 Federal Reserve policy meeting greatly disappointed traders who wanted more easing.  Discussion at the meeting indicated present programs will continue, but no “QE3” is in the works unless economic growth slows considerably.  Ben Bernanke and his colleagues rule out nothing, of course, and could easily tweak their position again at the next meeting.   

Another discouraging news item came from Europe – a faraway continent Wall Street has tried hard to ignore.  A government bond auction in Spain failed to reach its $3.5 billion Euro target amount.  An austerity budget, presented last week, has not calmed fears that Spain will be the next Eurozone member to need a bailout.

U.S. Treasury yields pulled back as the Spain news created renewed safe-haven buying.  At the same time, gold fell sharply today, suggesting inflation fears are under control for the moment.

Wall Street has placed itself in a difficult position.  In order to get what they want – more liquidity – financiers must cheer for a weaker economy.  The Fed has signalled quite clearly that no more easing is on the table as long as we have even mild economic growth.  On the other hand, economic growth is what creates corporate profits in the long run.  Traders and investors are being forced into battle.

Sectors

Technology again leads a sector table whose top four categories are the same as last week.  With tech stocks entering what appears to be a period of sideways consolidation, we may see the sector’s momentum readings decline – possibly enough to let one of the challengers move up to first place.  Consumer Discretionary remains in a steady uptrend dating back to December.  Health Care, still at #4, was the strongest sector for both the past week and the past month.  Publicity surrounding Supreme Court hearings seems to be been beneficial.  The middle of the pack now includes Consumer Staples, Industrials, and Materials; Telecom declined and is now one of the laggards.  Utilities was stirred off the bottom as Energy’s score fell below zero.  This is the first time in more than two months any sector has shown negative momentum.

Styles

The Micro-Mega Duo lost its lead of the Style rankings, though both remain near the top for now.  We doubt both can stay on the same end of the chart much longer, so one or the other should move away soon.  The investor preference for Growth over Value is still in place.  The Small Cap groups are very close, however, so a change may be developing.  With Large Cap Growth in second place and Large Cap Blend in fourth place, “Large” and “Growth” are the winners this week.

Global

Quarter-end seems to have coincided with lost momentum for most Global markets.  The U.S. maintained its top ranking and seems likely to hold that position a while longer.  A stronger greenback is proving very helpful.  Europe, last week’s #2 category, tumbled to #6 this week as media reports again focused on the region’s debt problems.  The relief provided by various liquidity programs is now starting to wear off, and Spain seems likely to be next in the spotlight.  The bottom of the list looks much the same as last week: China, Canada, Pacific ex-Japan, and Emerging Markets are the lagging benchmarks.

 

Note:

The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.
 

“Spain is facing an economic situation of extreme difficulty, I repeat, of extreme difficulty, and anyone who doesn’t understand that is fooling themselves.”

Spanish Prime Ministher Mariano Rajoy, April 4, 2012


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